Defined Ambition? More like Blonde Ambition
Defined benefit pension schemes do not fit with 21st-century capitalism - these were the words of Ros Altmann last week after Steve Webb MP announced a new-style defined ambition pension.
It sounds good, creating an alternative to allow employers to offer some sort of pensions certainty despite the economic turmoil and fickle nature of investing.
However is this going to work? And why is the Department for Work and Pensions only now getting its act together to come up with some form of pension scheme that is not as expensive as DB, but carries more certainty than the average defined contribution scheme?
Furthermore why has it taken the industry 15 years or more to work out that something needs to happen? Why does it take three major wars, three stock market crashes and a narrowly-avoided-technical recession to kick start some new thinking?
Back in the early 1990s, public sector pension workers were sent letters saying that scheme deficits were widening and that DB schemes would have to start closing. People were told to start making other arrangements and given information about a range of pension schemes that might help them to bridge the gap.
I know this because I was responsible for proof-reading those letters for the then Croydon Council Pension Scheme, which later got privatised and right royally screwed up by a consultancy that now no longer exists.
More than 2000 letters were sent out that week, and my tongue is still sore from licking those envelopes. My eyes still remember the strain of double-checking pension numbers against the Fiche Readers. Remember those?
So if, in 1993 to 1994, public sector workers, actuaries, government departments and consultancies knew that DB schemes were unsustainable and that a deficit was starting to yawn, why the fling flang jang did the then Tory government and the Labour one that followed not actually do something sensible in the 1990s, instead of coming up with a lame attempt at a low-cost stakeholder pension that involved a talking dog and a spider?
Steve Webb’s idea is a good ambition. But with IFAs fearing it will be “virtually impossible” to fund any traditional pension, and therefore harder for employers to shell out more money to create completely new schematics for employee savings - especially as they are already coping with auto-enrolment - just what sort of ambition is this?
Sounds like Blonde Ambition to me: an artificial attempt to rejuvenate something that is old, tired and does not fit into the 21st Century.
A little bit like me.