LCP senior partner Bob Scott tells Stephanie Hawthorne about the improvements made to pensions over his nearly 40 years at the company, and those areas that should have been left well alone.
Moving from Australia to the UK after a stint as an actuarial trainee at Colonial Mutual, Mr Scott thought his adventure would only last a couple of years.
“Two years became five”, and now in his fourth decade of pensions, LCP’s senior partner since 2011 says he has seen some remarkable changes for the better, including the sophistication of investment strategies and the reach of the sheer numbers now saving for a pension. On the downside, he points to the enormous volume of legislation, the jargon creep and the low level of state pension in real terms.
People have not exercised their freedoms recklessly – most have had relatively small amounts of retirement savings that would not have provided them with much of a lifetime income
“If you take things as a whole, the UK is certainly not in the premier league when it comes to pensions provision,” he says.
System must help savers, not confuse them
So what for him are the most pressing concerns? For one, he would like to see an end to the blame put on savers for their inadequate provision by the media and others, and a focus on automation to improve retirement planning.
“Innovative at-retirement products would help,” he says. “People come to retirement with a large sum of money who don’t quite know how to invest it, how to manage it, how to draw it over their lifetime.
“We need something as an alternative to annuity that makes it easy for people to manage their money.”
Another area of the pensions system Mr Scott would like to see changed is regulation, and he calls for watchdogs to be given the powers they need, rather than those that will please the public.
On defined benefit funding for example, he says: “The Pensions Regulator has the powers, but these nuclear powers are so tough and difficult to enforce that it hasn’t used them. That needs to change.”
Meanwhile, he questions the point in the industry toiling over guaranteed minimum pensions, given their relatively inconsequential nature.
Salami slicing continues
Tax has hung over pensions almost throughout Mr Scott’s entire career. It is something of an admission for an actuary to say: “Tax is so complex that no one understands it.”
Tax relief plays an important role in encouraging people not to rely on social security, but should never be unlimited “because it’s for retirement provision not tax planning”, he adds.
All the same, higher earners should be incentivised to provide well for their employees. It is not the level of tax relief on offer, but unnecessary meddling that irritates Mr Scott.
“Constant tinkering – starting with the 1989 earnings cap, which disenfranchised the next generation of senior executives – has made the system almost unworkable. It’s in need of an overhaul. We have seen that with doctors refusing to work extra shifts,” he explains.
Despite this, Mr Scott welcomes the most controversial reform of all: pension freedoms. “People have not exercised their freedoms recklessly – most have had relatively small amounts of retirement savings that would not have provided them with much of a lifetime income,” he says, welcoming the flexibility they bring.
However, he worries about the fate of those who have transferred out of DB pensions, saying that risks to their quality of life even include investing their lump sums too cautiously.
“It comes back to my point earlier about designing products that make it easy for people to turn defined contribution pots into income,” he says.
Weathering the Brexit storm
Actuaries are well versed in making assumptions about the future, but Mr Scott refuses to be drawn on Brexit’s impact on pensions.
“It’s difficult to know what impact Brexit will have – deal or no deal. The Pension Protection Fund is in good shape… and so it can cope with a certain amount of adverse experience,” he says.
Whatever becomes of Brexit, Mr Scott’s own outlook is sunny. LCP achieved record total revenue of £114.9m in the 2018-19 financial year, and while he would not comment on the speculation, rumours of a £200m bid for KPMG’s pensions consultancy arm were reported by Sky Business earlier this year.
“We don’t comment on media speculation, particularly where it relates to our competitors,” he says.
Perhaps it is this success that sees him as energised as ever after 40 years at the company. “I’m still working full-time, very much enjoying my work, the challenges, and day-to-day cut and thrust,” he says.
“With two young children (10 and seven), I have no plans to slow down just yet.”
