The pensions and annuities market in the UK is huge. It is also complex and undergoing considerable change, or to put it another way, frequently misunderstood and politically charged. So in the next few posts, I will be highlighting a series of ethical questions that the market needs to find lasting answers to in order that the transformation it is about to undergo delivers public confidence in private provision for retirement.
The pensions market will have their work cut out to deliver renewed public confidence. It has a chequered history of misconduct that has tilted public trust away from it. This led to a lower take-up of what the mainstream market was offering, which raised concerns in Government about an increased burden on the state. This in turn encouraged Ministers to tinker with laws and taxes around pensions to boost pensions take-up, which produced even more complexity and a market the in’s and out’s of which were even more difficult to understand. A simplified overview no doubt, but one that many in the public would recognise.
The latest stage in this long running saga was the surprise announcement by the Chancellor of the Exchequer in March this year of sweeping reforms to the options at retirement available to consumers with a defined contribution pension. The Chancellor also promised that by Apri l 2015, all of the circa 400,000 people who reach retirement age each year would be offered ‘impartial, face to face and free at point of use’ guidance. Interesting tactic – turn the market on its head and then tell it to quickly and hugely scale up the very type of guidance that it has at times struggled to deliver to a much smaller audience.
Delivering this revolution will make many demands on the pensions market, but probably the one it will find most challenging will be the regaining of public trust. After all, the “best laid schemes o’ mice an’ men” will count for nothing without that trust. So there’s a danger that a huge amount of effort, innovation, redesign and reorganisation will count for nothing unless the sector faces up to, and tackles, some fundamental ethical challenges.
So where should a typical insurer or adviser network start? Certainly the first thing not to do is make a grab for the nearest and most obvious ethical issue and tell everyone in your firm to do better at it. Such flurries rarely have any lasting effect. Equally, taking huge strides to offer more and more guidance to many thousands more people will achieve little unless those people feel able to trust what they’re being told and unless the options on offer to them feel more secure than, say a buy-to-let property. We’re talking about a mountain to be climbed here.
The ethical issues I’ll be looking at over the next few posts fall into two broad categories: design and distribution. When questions are raised about misconduct in the pensions market, the focus is invariably on the distribution side: conflicts of interest, inducements and suitability for example. And these are big issues, but, starting in the next post, I’m going to look first at the design side of pensions, for I believe that is where the root cause of many of the sector’s problems lie. The three subsequent posts will then look at distribution, data and how insurers can respond to the ethical issues raised.
Duncan is the founder of the Ethics and Insurance blog and the author of its many posts. He's a Chartered Insurance Practitioner, having worked 18 years in the UK market. As an adviser to many firms on ethics issues, as well as a regular conference speaker, he is one of the leading voices on ethics and insurance.