Encouraging people to save more for their retirement is an example of the kind of ‘wicked problem’ that I argue requires a clumsy solution incorporating elements of hierarchical authority, social solidarity and individualism. Today comes news that the RSA has made its own contribution to such a solution.
There is no question that we have a problem, with a Government minister recently stating that eleven million people are not saving as much as they should. There is no mystery to the mix we need to make progress but there are many barriers to getting all the ingredients together.
The role of Government is to make the public case for saving and to provide the right framework of incentives, regulation and guarantees. The role of the individual lies on both the provider side in offering the right products at the right prices and on the purchaser’s side with people pursuing the ambition of independence and security in retirement. Finally, the solidaristic element lies in society providing for those for whom saving is difficult or not rational, in public acceptance of a gradually rising pension entitlement age as part of intergenerational fairness, and in a strong social norm for the rest of us to put enough by so that we aren’t a burden on others.
The most important reform on the near horizon is auto-enrollment, which starts to be implemented in just two months (although, as various RSA reports have argued, some relatively small changes to the current plans could make the system work much better). But because of restrictions on the amount that can be saved through auto-enrolment, and also the scope to opt-out of the default system, the offer made by the private pension industry is still an important part of the picture and one of the reasons we collectively aren’t saving enough.
Not only has RSA research consistently highlighted the punitive level of fees levied by many providers (for stewardship services of highly questionable value), but a few months ago we exposed the failure of the overwhelming majority of providers to be open and honest about these fees.
It was then great news yesterday to hear that the private pension providers’ trade organisation, the Association of British Insurers, has pledged the industry to clean up its act on disclosure (something which the Daily Telegraph directly attributes to the RSA’s work and the minister’s response to it). To say that the RSA and ABI have not seen eye to eye on private pension charges and regulation something of an understatement, so let’s hope this is a real sign of a change of heart and that the ABI and its members can in future be part of building that clumsy solution rather than being a barrier to it.
PS While I’m in RSA boasting mode can I give a bank holiday plug for a great album produced by the Society’s very own web supremo Sharliza Jelita. If you like your music clever and funny as well as catchy and danceable (think early Talking Heads, XTC, Rezillos; and, yes, I know these references date me!) you’ll love it.
It’s been another week when newspaper financial correspondents have been hogging the front pages – with more questions doubts over the role of the Bank of England in lowballing the Libor rate and admissions by HSBC executives that they had failed to prevent money being laundered by drug cartels and terrorists.
And just when we thought bankers couldn’t possibly be usurped as the most unpopular people in Britain, it now seems our pensions fund managers are doing their very best to secure a slice of the public’s wrath.
Today the RSA published our latest Tomorrow’s Investor report in which we conclude that private pension firms are hiding some of the costs they levy on customers’ investment funds – including commission, transaction and management fees.
Our researchers found that when they questioned firms, 21 out of a sample of 23 failed to disclose the full investment costs. This means that customers are left unaware that their pension pots are being eroded by charges – sometimes by 40% or more.
The report has attracted huge interest, including an item on the Today programme, Sky News, the front page of the Daily Telegraph as well as articles in Times, Independent, Mail and Express. As well as the coverage, the main message of the report – that our problems would be solved by lower costs combined with a transparent competitive market – has been well received by policy makers and consumer groups (if not, predictably, by the industry).
David Pitt Watson – the report’s author (and Fellow), has been relentlessly pursuing this agenda ever since the RSA’s original ‘citizen juries’ into pension costs in 2008. I’m happy to say it seems his hard work is beginning to pay off with the pensions minister Stephen Webb saying that “If (charges do not come down) we have the power to act and we will”. The Work and Pensions Select Committee has also agreed with many of the RSA findings.
Today’s report also follows an attack on fees charged by independent financial advisers (IFAs) by Labour leader Ed Miliband who suggested a cap should be introduced on pension charges. Our report recommends a different and less restrictive approach – simply that pension funds provide savers with annual statements, like a bank account, revealing the full impact each year on their investments of all charges and costs.
As we expected, there has been rebuttal from the pensions industry, although its spokespeople haven’t questioned the veracity of today’s research. There is one thing for certain however. With the ONS revealing that the percentage of employees who have a work based pension falling below 50. and the proportion of those in private sector final salary scheme dropping to less than one in ten something has to be done and done quickly.
Apparently I should start drinking milk with powdered aspirin if I want to live longer. I’m not sure how useful this is for me. Yesterday was the first day of my fifties but if the sixth decade goes on like it started there’s no way I’ll make it to the end.
As days in my life as RSA chief executive go I think yesterday could reasonably be described as ‘full-on’. The morning saw the launch of our Tomorrow’s Investor project report. It attracted huge media interest, including an item on the Today programme, BBC News, front page coverage in the Daily Telegraph plus extensive articles in other broadsheets and other expert publications. As well as this fantastic coverage, the main message of the report – that relatively minor changes to our regulatory framework could boost pension returns by 40 percent – seems to have really struck a chord, with a lot of follow-up from policy makers, universities and think tanks.
When David Pitt Watson – the report’s author (and Fellow) – spoke at yesterday’s launch he started by reminding the audience that the whole project began with a focus group made up largely of RSA Fellows. It was their horrified reaction to being told the impact that fees have on their private pensions (costing up to 50% of the money saved over the full life of the pension) which confirmed that this was something we should pursue. I have real hope that our recommendations will in time lead to a shift in Government policy.
Then yesterday evening we had our AGM.
I should start with a big ‘thank you’ to all those Fellows who turned out in the bitter cold (I know many of you travelled from far afield) and to everyone who took part by voting. Discussions have been raging (quite literally at times!) over the last few weeks on some of the issues on the agenda but there was virtually unanimous backing for a Fellow’s proposal to set up a Governance Review Panel and we will be putting the wheels in motion on this as soon as possible. I think we should set ourselves the ambition not just of finding a way forward on the issue of Trustee composition but of creating a model governance structure, ranging from the Board to regional structures and Fellows’ rights.
As any past Board Chair or Chief Executive of the RSA will confirm, the issue of relations between the centre, the regions and Fellows themselves has often been problematic. With more Fellow activity now than ever before, and a real enthusiasm among staff and Trustees to put Fellows at the heart of the Society, we have a chance to create a modern, open, flexible form of governance which provides the best possible platform for the RSA to be a powerful force for good and acts as a model for other membership organisations facing similar issues.
As I approach four years at the helm of the RSA I find myself assessing progress. The Society faces vitally important decisions about its future so it’s useful to get a sense of where we are now.
A long term trend in the RSA has been to expand our research capacity. A few decades ago we didn’t really do research and even when we did it had a somewhat random feel to it. We have come a long way since then. But it is fascinating that today’s new focus, new methods and new ambition are balanced by a strong sense of continuity. For example, I have on my desk the draft report of our Tomorrow’s Investor project. In the face of the shocking fact that many private pension savers see up to 40% of their savings consumed in fees, the focus of this report is how to put in place an affordable and well governed pension scheme. There is even an intimation that if Government rules change and allowed the new scheme we are proposing to be created, the RSA could in some way be involved in establishing it. While this is a big idea and a new research area, longer standing Fellows will see the continuity with one of the Society’s most influential projects in recent times: Tomorrow’s Company.
Another area of continuity is the RSA’s commitment to engage Fellows in projects. Not only is the Tomorrow’s Investor project overseen by a steering group made up of Fellows but the very first stage in the project – two years ago – was a kind of citizens’ jury of pensions savers largely selected from the Fellowship.
Next week will also see the publication of our report on ‘whole-person recovery’, which is, I think, an exceptional piece of work. The report breaks new ground for the RSA with a methodology which engaged up to two hundred people with drug and alcohol dependency issues in designing not only a new way of thinking about recovery but also new types of service. Not only is our model proving very interesting to central Government but is being taken up and used on the ground. But, again, there is continuity. This project emerged out of the work of our Fellow-led Commission on Drugs which was published to widespread acclaim back in 2006.
The same pattern is repeated elsewhere. Our Academy is going great guns and we are thinking about the possibility of having a close relationship with more schools. The Academy is developing the Opening Minds approach, now taught in over 200 schools, which was first promulgated in a report in 1999 which was itself based on earlier work on new forms of learning, again overseen by a working group of Fellows. And today we have a research project – the area based curriculum – based in Peterborough which could in time help develop a new direction for Opening Minds. This project was high on the agenda of a very lively Fellows’ network event in Peterborough earlier this week.
Our design team continues the long tradition of our student design awards but now the emphasis on service design and what we call ‘design for resourcefulness’ (how can design not only meet needs but help people to meet their own needs).
Overall, our projects team is getting more press overage, achieving greater impact with national and local government and attracting more external funding than ever before. But the progress we are making is built on the strong foundations set by a previous generation of Trustees, Fellows and staff.
The news that final salary pensions schemes have virtually ceased to exist, at least to potential new entrants is a reminder of the importance of pensions policy. It may be that the savings rate is now higher in the UK than for many years but most of us continue to save far too little to have any chance of the retirement income to which we aspire.
In a move which received little coverage outside the specialist press, Labour used the Pre-Budget Report to slow down the introduction of the Personal Accounts System including the element of matched savings through which employee contributions are matched by employers. Yet ministers and civil servants privately agree that even this system will only make a difference if the target savings levels are rapidly increased, as, for example, they have in Australia. Meanwhile the Conservative policy on pensions – arguably one of the most pressing policy issues we face – remains opaque.
The RSA addressed some of these issues with our Tomorrow’s Investor project last year and I am keen that we continue to work in this field. I have argued in the past that to close the ‘social aspiration gap’ more people need to be more self reliant. The truth is that we want to live longer but we don’t want to accept the consequences of this advance: to whit, saving more and working longer. In part, the collapse of final salary schemes (which were generally well managed and with low fees) came from an unwillingness by employees’ representatives to renegotiate the benefits of these schemes even as the evidence of their non affordability to the business and unacceptability to shareholders grew.
The result is that most of us are implicitly relying on the state or our grandchildren to keep us comfortable in old age (and this applies as much to the middle classes as the poor). Sorry to start the New Year with gloom, but this is a text book example of a combination of a lack of public realism and political courage conspiring to store up huge future problems.