MRM FUTURE FINANCE: Employers “should pay auto-enrolment cash straight to employees to manage themselves”

In the latest instalment of our Future Finance interview series, we chatted to pensions guru Tom McPhail for his views on the industry, the future challenges it faces and why he’s now decided to exit after 34 years for pastures new.

If you’ve got even a passing interest in pensions, it’s a near certainty that you’ve heard of Tom McPhail.

The pensions guru of D2C platform Hargreaves Lansdown has spent 18 years at the Bristol-based FTSE 100 giant and is an automatic go-to for journalists and the industry at large.

News of his exit – to go and join an Electric scooter firm later this year – was therefore a shock to many.

“It is a big change for me, and it does feel weird to be leaving the industry behind after 34 years, but I am very excited. The new role makes me feel like I’m getting involved in a fulfilling purpose.”

Electric scooters aside (more on that later), McPhail says there have been incredible and unforeseen changes in pensions in recent years, many of which he welcomes.

However, one area still causing him consternation as he leaves is around auto-enrolment. “The state pension reforms and move to auto-enrolment have been some of the big changes of the last decade in the UK, but there are still some major flaws.

“For DC savers, the issue now is that they are detached from their savings because of how it is set up. In terms of investments, what someone can access to save for their own future is entirely up to their employer and whichever provider they choose.

“I think we should have that choice back, and I’d like to see a change so that, if I started a new job, for example, I could say to my new employer ‘give me the money to put in my own pension directly, rather than make me join your employee scheme.’”

While McPhail concedes many people will not want to take such an active interest in their pension when they start a new job with a new company, there should nonetheless be a choice so that those who want to manage it themselves are not penalised.

“Being a passive saver and having your employer sort your pension for you will obviously appeal to many, and overall auto-enrolment has been remarkably successful at getting millions more saving, but adding this flexibility to it would help it cater for an even wider demographic.”

The other area he would change is the UK’s antiquated and convoluted tax system. “We are at this point now where millions more of us are saving for our retirements via auto-enrolment, and that is great. But with the onus put more on the individual thanks to pensions freedoms, we now need to make it as clear as possible for everyone to engage with their pensions.

“Unfortunately, so many aspects of the tax system built around pensions are wrong. People don’t understand tax relief, annual allowances, lifetimes allowances and all the other nuances, so I’d get it all on the table and have a re-think.”

Not that he thinks that change is coming any time soon. McPhail points out it’s already been a radical half-decade for pensions (“I was as gobsmacked as everyone else when pensions freedoms were announced,” he said) and going forward, apart from some changes which are already firmly in the spotlight, he expects it to be a quieter period.

“After the last few years and the major announcements we’ve seen, I don’t think there will be many more radical changes to the state pension, or to the pensions landscape.”

“The areas where you will see change are well-flagged already – including changes to the way pensions are taxed, with the Chancellor likely to see the abolition of pensions tax relief for higher earners as an easy victory for the Treasury now,” McPhail said.

In 2018-19 this was the most expensive tax break the government gave out, costing £38bn, and by restricting tax relief an all pension contributions to 20% it could raise more than £10bn a year, according to estimates.

Away from pensions policy, McPhail says one area to keep an eye on more than ever is ESG investing.

Many of us are more concerned than ever about the environment following some unprecedented natural events in recent years, but as an investment option it has lost out to a focus on performance and returns.

It is here McPhail thinks some bright spark can really make headway in the future. “People’s attitudes towards ESG investing have changed in recent years and it is now much more front of mind.

“Unfortunately, the actual linkage between investors choosing these funds, and what the underlying corporate behaviour of a company is, have not worked in unison. If someone can manage to build a bridge for that – so investors are really making a difference and can see it directly – that would be a very interesting development.”

As to McPhail’s own future, he is eager to get back to lobbying for a cause he strongly believes in.

“Currently, electric scooters can only be used on private land, which clearly restricts their utility as a mode of transport.”

McPhail is a keen cyclist, and over the last few years his interest has moved on to electric scooters, but there is a lot of work to do to make them street legal, something he is relishing.

“The aspect I love is that there are some real opportunities here to push for policy change and to get them legalised for public use.

“Clearly there are regulations that need to come in for things to change, and there is a big pothole problem in the UK which would simultaneously need to be addressed, but it’s a really exciting opportunity.

Will he miss HL itself? “I’ve worked there 18 years so of course I will miss parts of it, but I’ve ended up working for a very different business to the one I joined, and I really like this new opportunity.”

Nick Paler, Associate Director and Head of News & Content, MRM