Tag: unelectable opinions

Unelectable opinions no.2: a National Pension Service

I would love to change our country and our world for the better. But there’s one overriding reason that I don’t go into politics: there are too many things that I think should be done that will never get taken up by any of our major political parties. So whether you agree or disagree with me, I’d love to hear from you.

The UK has a pensions problem. Everyone would agree that it’s a bad idea to let the elderly die in penury, and you have to go a very long way right to find someone who doesn’t think the state should play a part. But the level of the basic state pension is derisory (£4,566 per year in 2019, compared to a median pre-tax income of £29,400). At the same time, the cost of the old age pension is one of the biggest items of government spending – in 2019-20, it’s expected to be £101 billion or around 12% of total government expenditure (which is higher, for example, than education).

And it’s getting worse. People are living longer and requiring more money to be spent on their healthcare. Increased labour mobility has broken up families, destroying the model of multi-generational households and making it hard for people to care for elderly relatives who are now distant.

But there is little political agreement on what to do about it: in fact, there are hardly any ideas for a comprehensive solution. Rather, successive governments of all political flavours have provided a series of kludges: the Thatcher-era push towards private pension provision with “contracting out” and the “state earnings-related pension scheme”, the Blair-era “stakeholder pension schemes”, the “auto-enrolment” workplace pension system of the Cameron-Clegg coalition.

Each of these kludges has piled legislation upon legislation into the pension area. More regulation came about in response to scandals like Equitable Life (where a major pension provider became non-viable because it had not anticipated changes in the financial markets); more still resulted from the decreased trust in financial institutions in the wake of the 2007-8 global financial crisis. The result is a morass of complexity so great as to be almost totally impenetrable to the overwhelming majority of the population. To give you a flavour of how bad it is, here is a typical extract:

The trivial commutation rule will only apply to defined benefit schemes. This is because defined contribution benefits may be taken as an ‘Uncrystallised Funds Pension Lump Sum (UFPLS). You have to add all the benefit values of all types of pension (company pensions/personal pensions/stakeholder pensions/retirement annuities/buy-out plans, but not any state pension) together. If they do not exceed £30,000 trivial commutation may be a possibility. In addition, trivial commutation can apply from age 55, or earlier, if in ill-health.

Do you have the foggiest idea what this is talking about? Because I don’t. I’ve run multi-million pound businesses including subsidiaries of major public companies and I’ve done my own tax return and company VAT returns for years, which I figure puts me in the top 1% of financially literate people in the country. But when it comes to pension documentation, I don’t even come close to understanding enough to make a reasonable decision about anything. I currently have four pension schemes, none of them enormous,  accumulated from different jobs. They all send me masses of mandated documentation, all of which is largely incomprehensible. I have no idea whatsoever how to manage these schemes wisely.

Many of the reforms, from Thatcher onwards, have been made in the name of giving consumer choice. But when consumers are utterly unequipped to make any kind of informed choice, that’s a nonsense. The official response to this is to suggest that you get professional financial advice, but that’s simply shifting the problem: consumers are equally unequipped to make a good choice of financial adviser. Take a look at a “find an independent financial adviser” page like this one: I defy you to give me a reliable set of grounds for working out which of these providers are any good.

My one good pensions experience has come not in the UK but in the 18 months that I worked in Singapore in the early 1980s. The system was really simple: I paid what felt at the time like an alarmingly high percentage of my salary into an account held in my name in the “Central Provident Fund”. Had I stayed in Singapore until retirement age, my pension would have been paid out from the fund (since I left the country, they paid out early).

I believe the UK should have a National Pensions Service: a single fund in which every individual has a named account, into which they make substantial contributions from an early age. Everyone should get the same investment return rate: the whole concept of consumer choice and the morass of documentation around it should be abandoned. The concept of a workplace pension should also be abandoned, getting rid of the massive risks for pension-holders of the bigger schemes and the recent onerous bureaucracy of auto-enrolment for small businesses.

This isn’t to say that the private financial services sector has no role to play. I have no problem with anyone being able to make private investments: I just don’t see why they should be subject to any special tax relief. And I also think there could be a role in the National Pensions Service for private investment managers: the NPS could parcel out chunks of the fund for management by private companies, who would tender for the work and would be assessed according to their performance. Their fees, however, should be a small fraction of the 1-2% of capital per year currently charged by the industry.

The level of contribution – and to what extent the state should top up the contributions of those at the lower end of the income scale – is a matter for the usual left-right political debate. But the principles are clear: (a) have a system where the investment returns are the same for everyone; (b) get rid of the titanic confusion levels; (c) get rid of the titanic waste of money currently expended in the financial institutions on management, marketing and compliance as well as on their own salaries and profits.

The transition plan would need a lot of attention (and is probably the hard part of all this). Most probably, a deadline would be set for people to migrate any private schemes to the new NPS, or face loss of their tax advantages – but a softer transition may be more viable.

Are you listening, UK political parties? In the Labour Party, are you too mired in the past glories of the workplace pension to countenance such an idea? In the Conservative Party, are you too much in bed with the Financial Services sector? Or are you both too timid to tamper with something that is so long term and won’t translate into an easy vote-catching slogan?

Sources for the data:

Unelectable opinions: Prevention of Faceless Bureaucracy Act

I would love to change our country and our world for the better. But there’s one overriding reason that I don’t go into politics: there are too many things that I think should be done that will never get taken up by any of our major political parties. So whether you agree or disagree with me, I’d love to hear from you.

Kafka portrayed it better than anyone: the common man, faced with a bureaucracy which is unreasonable, impenetrable, which denies you access to the people who might resolve your problem, an entanglement of petty obstacles which exhausts your will to stand up for your rights.

In the course of the last decade, UK government departments have been making enthusiastic efforts to turn Kafka’s vision into reality. This post isn’t about the big deliberate policies like Theresa May’s “hostile environment”, iniquitous that it was. Rather, what I’m talking about is this: every government agency, one at a time, has changed its operational policies in ways that make it more difficult, frustrating and time consuming for individuals to deal with them, while increasingly allowing government officials to engage in unfair behaviour without sanction.

I’ll start by quoting two examples from my own direct experience.

My company occasionally sells services to public bodies in Poland. For some reason, in order to pay our invoices, these bodies require a Certificate of Residence which is produced by HMRC. Back in 2011, the procedure was fairly straightforward: you phoned your assigned HMRC office, they told you what you needed to put in a letter to them and when you did this, they sent you back a signed certificate. Job done, invoices duly got paid.

By 2017, the process had changed. There was now an online form filled with jargon that was hard to understand unless you were an international tax expert (I’m not). Several weeks later, a certificate was sent, but this contained a laser printed signature which was unacceptable under Polish law. I couldn’t phone the HMRC office any more: all I could do was to get through to a call centre operator who refused to deal with the problem, saying that “HMRC no longer issue documents with wet signatures”. In the end, we wrote off a significant sum of Polish withholding tax.

My second example is with the Valuation Office Agency – the bit of government which assesses the rateable value of a business property, who set our business rates at several thousand pounds higher than the correct amount (they used a wrong measurement). Once again, we were banned from speaking to the person dealing with the case: our only possible contact was via the call centre – lots of time waiting in voice mail jail, followed by speaking to a person with no authority to even read the full case documents, let alone actually take action.

And here’s the beef: when I submitted a complaint, the complaints office passed it on to someone inside the VOA, but refused to initiate a formal complaints process on the grounds that their Code of Practice states that I should have started by “contacting the person you are dealing with”. Since the VOA specifically made this impossible, this is a Catch-22.

What’s happened in both these cases is happening across just about every government department: where the old process involved assigning your case to an identified person who would read your letter or answer your call, the new process deliberately makes it as difficult as possible for you to do contact any person with any level of authority to assess and deal with your individual case. It’s done in the name of cost reduction, but what’s actually happening is to transfer cost from the government to the individual while ignoring the increased risk of unfairness.

I’m fortunate that on the grand scale of things, these examples are minor and that I’m literate enough to deal with them (in contrast to HMRC, by the way, the VOA dealt with my complaint properly). But the bureaucratic mechanics at play – the replacement of individual responsibility by rigidly automated processes – are the same ones that cause genuine hardship to vulnerable people, as shown in this article from the Guardian and this harrowing story from the Liverpool Echo. People are actually dying as a result of this trend.

Please don’t think I’m a luddite. I’ve designed and sold customer-facing IT systems and use them happily every day. This is not a complaint against automating routine processes: it’s a complaint against government officials being encouraged to hide behind a mask of anonymity and the shield of a call centre. “I was only following orders” has been replaced by “I followed the process”. Officials should not be encouraged (or even forced) to behave in ways that are blatantly unfair or inhumane as a result of supposed efficiency measures. And my (admittedly untutored) guess is that if you account for the duplication of effort from multiple people reviewing a given case and the time wasted by members of the public in jumping through hoops, the cost savings are illusory.

I believe we should have a Prevention of Faceless Bureaucracy Act which grants any citizen dealing with any government department the right to the name, email address and direct telephone number of the official dealing with their case, with a defined level of responsiveness required from that official and a defined process for escalation if that responsiveness is not met. For good measure, let’s add a requirement that senior department officials should be required to meet those responsiveness levels as a condition of any bonuses.

This idea isn’t glamorous and is probably tricky to implement. But I honestly believe that the attitudinal change involved would make a big difference, most of all to those too vulnerable and/or IT-illiterate to deal with the systems and processes now being rolled out. We must not allow the current dehumanising trend to continue.