Last week’s King’s Speech included a proposal for a Pension Schemes Bill intended to deliver “better outcomes” for private sector pensions savers and “support the Government’s mission to deliver growth”. But the three pages of Briefing Notes beg many questions and deliver few answers.

For defined contribution pension schemes there are three main initiatives:
• The automatic consolidation of deferred small pots: this will “maximise income in retirement, and deliver value for every saver”;
• The introduction of a Value for Money framework requiring pension schemes to demonstrate they deliver value through the application of a standardised test;
• The requirement for pension schemes to offer retirement products, “so people have a pension and not just a savings pot when they stop work”.

Whilst these proposals sound superficially sensible, as ever the devil will be in the detail.

Automatic consolidation

There is no detail as to how this will actually work, with the notes simply stating the process will, “enable an individual’s deferred small pots to be automatically brought together”.

Surely it would be far better for individuals not to accrue small pots in the first place by introducing a portable workplace ‘pension-for-life’, but this appears not to be contemplated.

The assertion that this will maximise income in retirement and deliver value, is also a presumption rather than an inevitability.

Value for money

I am concerned that the ‘standardised test of value’ concept runs the risk of being highly reductive, defining its terms of reference too narrowly and focusing on too short a time period.

This is perhaps best exemplified by the supporting assertion in the notes:

“Over a five-year period, a defined contribution pot of £10,000 (with no further contributions) invested into the lowest performing scheme would be worth £10,400, whereas invested in the highest performing scheme it would be worth £15,100 – 46 per cent higher.”

Backward looking, over-simplified, without context…and obvious: good funds do better than bad!

Offering retirement products

The requirement that schemes offer retirement products begs a very obvious question: what is a “retirement product”? It sounds like this means annuities, but it’s not clear.

There are two possible issues with this.

First, the skills required to manage the accumulation stage of a pension – essentially investment management – are different to those needed to deliver in the decumulation stage – more risk management. Secondly, annuitisation may not be the right answer for all individuals in retirement.

There’s also no certainty this will “improve outcomes for savers” as the notes claim.

What’s missing

It is striking to me that nowhere in the notes can the following words be found: “advice”, “guidance” or “decision”.

I worry that these proposals as outlined could lead to a highly consolidated market, where value was measured solely by cost and consumer choices were limited and made available with limited guidance.

And all this for what?

Apparently so that the average earner who saves over their lifetime has “over £11,000 more in their pension pots with which to secure their retirement income”. That would scarcely make any difference anyway!