Lessons From Across The Pond

If you want to see where the law on pensions is going in the UK, the US is usually a good place to start.

Part of this is down to similarities in economic models, political influence and common language. The UK Government copied the best bits of the Pension Benefit Guaranty Corporation when it set up the PPF.

There are also "structural" similarities created by the existence of a sizeable private pension sector. Both systems have a basic divide between schemes with a third party subject to a fiduciary duty looking after pension savings (in the UK a trustee in the US, a fiduciary) and contract- based schemes. Both systems also have a divide between defined contribution and defined benefit pension schemes.

In general both markets have moved away from the fiduciary responsibility/defined benefit model towards the laissez faire approach of contract-based defined contribution pension provision with the US marginally ahead at this time.

This has led to a problem. Once you remove the fiduciary from the pensions equation as has happened in the contract-based defined contribution model, it pushes responsibility down to the individual saver looking after himself. Trustees and fiduciaries in the UK and the US have duties to look after their members' best interests and the resources to obtain professional advice. Individuals only have what they personally bring to the table and a limited ability to seek out investment and product advice in their spare time.

Individuals do have two strengths which governments cannot ignore:

They can bring political pressure on the State to step in and support them in their retirement. They can go to court. In the US this has led to lengthy court battles with employers and advisers over bad pension outcomes. In the UK we have pension mis-selling scandals and variants of the Equitable Life debacle. This makes regulating personal pensions a fun problem for governments on both sides of the Atlantic.

In the US the Department of Labor (DoL) regulates pension relationships. It has just released a contentious proposal to impose a fiduciary relationship on investment advisers acting for individual pension savers. Full analysis from my US...