How do you view the PLSA’s current role in the industry?
We are an association of our members and we are here to represent our members, we are not the regulators. We do set some standards, for example the Pension Quality Mark which is a voluntary scheme for people running DC schemes to sign up to if they want to. Part of what we do is to push up standards and strive for improvement, but, again, we are not the regulator. We will lobby the regulator and government but we are not here to regulate our members, they have enough of that from other quarters – we are here to lead with our members and represent our members.
What is the PLSA’s view on government proposals to change the way pensions are taxed?
We think TEE (tax-exempt-exempt) will be bad for savers because it means they will have less going into their pension pot in the first place, and bad in the long term for the Exchequer because if it is taxing people on the way out it can tax on the contributions that have gone in and the investment roll up; but if it taxes them on the way in, on contributions, it will not get the tax back on the investment roll up and will have to deal with a growing tax base of pensioners not paying tax – ultimately that is going to be unsustainable. A flat rate sounds superficially attractive, but when you scratch beneath the surface certainly for occupational
schemes, there is a huge switch over in terms of tax regimes and payroll processes which have multi-million pound costs associated with them. In addition, the
flat rate would probably be set at a pretty low level so it would disadvantage large groups. Our message to government has been let’s have a proper discussion about incentives but that may not be about tax. The other thing we have said is government needs to be straight with us. Why is it we are having this discussion? Is it about getting more people saving more into pensions or is it about tax grab? What do you make of the government shelving proposals for defined ambition,
pot follows member and collective DC schemes? I think the pensions minster was right to say: ‘let’s focus on the big issues’ and thumbs up to her for saying we have a hell of a lot on our plate and really listening to us. We have 1.8 million small employers to get through the doors of auto-enrolment and they are not going to be as able and, hopefully only in a minority of cases, willing as those employers who have been before. We also have tax changes and are in the really early stages of freedom and choice meaning there is a whole new market of in-retirement products that need to be delivered. We have to have a proper debate on how we deliver advice and guidance on freedom and choice and make sure there are some standards around some of those products, which we are going to do. We also have the small matter of the new state pension coming in next year with huge changes for DB schemes in ending contracting out.
Do you think there has been enough innovation in the investment space following freedom and choice?
I think there is a lot of innovation to come because we haven’t yet seen the development of mass market drawdown products. It is early days and providers have
only had 55 weeks to implement everything, so I guess providers want a bit of experience of what consumer demand is likely to be before they start to implement
those products. We are quite clear we want to see some default pathways for trustees and individuals to help them choose good schemes and sitting alongside that some quality standards for what those products should look like.
How might these default pathways develop?
If you think about it from a trustee perspective, most schemes themselves are not going to provide a full range of in-retirement products because they are
simply too small, but what trustees are looking for is being able to guide scheme members to a good outcome. Most people choose a default investment option and we have spent a huge amount of time collectively looking at what a good default looks like and it is about applying some of those principles at the other end without completely going against those principles of freedom and choice. It is important to recognise that part of freedom and choice is the freedom not to choose and those people still need to be guided towards a good outcome.
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