You are replacing Lesley Williams, who is stepping down after two years in the role. Is she a tough act to follow?
Yeah. She is a tough act to follow, but we are different people. We’ve got our own styles.
We have subtlety different agendas. We have been part of the same board since I joined four years ago. It was the board three-and-a-half years ago that set the strategic outlook for the association. So in a sense I’m the continuity candidate, but we have different ways of looking at things and different approaches.
Under Ruston Smith we re-set the strategic objective. One of the most obvious bits of output from that was the change of our name. Under Lesley what we have been doing is working hard to re-design the governance structures so that they are consistent with delivering this long-term strategic objective.
My mission as chair is to take us to the next stage of our process in the re-setting of our strategic objective. The next part of this project is to broaden and deepen our relationship with our membership.
I am a firm believer in collective wisdom. The only way that we are going to produce good, really helpful, optimistic policy output is if we have the benefit of input from a wide audience of people. So my mission over the next two or three years is to widen and deepen the relationship that we have with our members, so we have more intelligence and can produce even better policy. Engage! Engage! Engage! Those are the three things that we have got to do.
A look at your blogs shows that you have a few gripes with the pensions industry. What is your biggest hang-up?
It is less of a gripe and more of a challenge. Our biggest challenge is the debate that we went through at the PLSA three-and-a-half years ago. In the past pensions existed as a siloed standalone concept, DB pensions. You didn’t join them; you were just included in them. You didn’t notice that you were contributing to them because your pay was deducted at source having been enrolled automatically. And you didn’t really have to plan for them when you retired because you were given a retirement for the rest of your life. That’s not, of course, the way that people see pensions now.
We did some research back in 2016 that showed people look at pensions in a much, much wider context. So pension saving is competing with holiday saving, rainy day saving, with ISAs and lifetime ISAs, with school fees and educational debt, trying to save money for a deposit for a house or paying the rent or mortgage, trying to spend a bit of money, have a bit of fun and paying the bills. All of these things are competing for resource.
What we have done as an industry is forget the fact that people see pensions in this wider context. We have designed products and services that are narrowly defined and do not look out at the rest of the world. So the challenge to the industry is to design products and services, and we have got to produce policy which is more outward looking to this wider ecosystem, so that it is more robust and more future proof.
What would you like to achieve in your first six months as chair?
To get that wider and deeper engagement with the membership. I am going to be announcing a number of initiatives during my opening speech as chair on the morning of October 20. I will be looking to see how those are getting on and if we are delivering the results that we want to get. How will I measure success? It will be through improved member engagement.
You have been in the pensions industry since 1985. What are the biggest lessons that you have learnt in that time about the industry that will help in your new role?
Possibly the biggest lesson that I have learnt is that for a long time we have selfishly focused on our own objectives as opposed to focusing on the objectives of the end-user: the pension scheme member. As a consequence we have allowed ourselves to get a little out of kilter with what we should be doing. We have been doing what is right for us as opposed to what has necessarily been right for the membership.
Everyone wants to do a good day job. Everyone wants to go home and feel happy with the work that they have done. But that subtle change changes behaviours. The biggest lesson is that we haven’t had that member focus all the way through. That is a criticism as well of policy and regulation, but it has started to change now. We are focusing more and more on the needs of the members.
A good example of that would be transaction costs. Transaction costs are a complex and difficult subject to get under the bonnet of. But unless we do that and understand the incidents and occurrence of transaction costs and the control environment that exists around them, we can’t know if the members are getting a good deal out of this, that the transaction costs are not taking huge amounts of their return away. We have had to change that and the regulators have changed that.
The PLSA has been involved in trying to come up with a framework that will allow or encourage good strong disclosure so trustees and governance committees can constructively challenge transaction costs and then assess them for good value.
Are price caps the answer?
If you put caps on asset managers that could be good for the investor, but it could also lead to managers making fewer trades for their clients. Caps are the wrong policy response. I would argue that we don’t need a cap in DC pension schemes, not in the truest sense of the word. Caps stifle innovation. They limit entrances to the market. That maybe a positive thing in some circumstances, but they limit the ability of your market to deliver good quality products.
In a sense, what you are doing with a charge cap is treating the symptom as opposed to the disease. The disease is poor governance. If you had really, really good governance then the charges would always be appropriate. They might be 50 basis points or they might be 150 basis points, but they would always be appropriate because that good governance function would have assessed them for value and determined that they do represent good value. So if you fix governance and have a good board exercising governance then you don’t need charge caps.
