Poring through the minutiae of all things technical in the world of pensions means he gets little chance to play the guitar these days. Controversial and opinionated, with the technical detail to back it up, today you are more likely to see Lawson, the company’s head of pension policy, on stage as one of the most quoted pundits in financial services.
Not quite a Standard Lifer – his stint at the company has been punctuated with an eight year stint at Bank of Scotland – Lawson was given the job of matching the ‘pensions guru’ status of rivals at Aegon Scottish Equitable and Scottish Life.
“Standard Life gave me a free rein to develop this role. They thought they were not getting the public recognition they deserved back in 2001 when I moved back there. They looked at the likes of Aegon with Stewart Ritchie and Scottish Life with Steve Bee and thought we were punching well below our weight while those companies were punching above theirs.”
Few would argue that he has matched these two in terms of profile, with a prolific performance in terms of column inches garnered and lobbying objectives achieved. It was Lawson behind the front page story in the Guardian that calculated the cost of tax relief on residential property in pensions as equal to 2p in the pound on income tax, a story he does not regret in the slightest.
“Looking back at residential property, the U-turn was the right answer. There was no way the industry was geared up to deal with the volumes that would have flooded through the doors. It would have been an administrative disaster and I don’t think the industry would have made any money out of it,” says Lawson.
“I felt they should have restricted it to what would have delivered a policy win, for example to address a shortage of affordable housing through special vehicles. But all they were doing was allowing billions of pounds of assets to stoke an already volatile market. It would have added to the bubble and been a nightmare for the industry.”
The other role of his job is to be the last point of technical judgement within Standard Life. “There has been an awful lot of change in pensions and that is why the lobbying side has developed a lot over the period. The press role and the lobbying role go hand-in-hand.
Lawson’s background in sales has clearly helped him understand the IFA mindset. He was educated at a comprehensive in Edinburgh and quit a degree in computer science at Heriot Watt after a year, wanting to get out there earning cash like his friends.
“I got to Heriot Watt and to be honest I really hated it. I did well on the maths, accountancy and finance and they gave me the option to switch to a maths or accountancy degree in the first year. But I decided to quit,” he says. “I really didn’t appreciate the opportunity that I had got. Neither of my sisters, who were clever enough, went to university and here I was opting out. Looking back it was a strange decision, but I didn’t like the course and my mates were earning money. My sister worked at Standard Life and got me an interview there and I started in 1984 in admin.”
A move to Bank of Scotland followed in 1993, where Lawson got the opportunity to test out his product design skills filling the holes in the company’s corporate pensions offering. It set up its own life office from scratch – the Bank of Scotland Investors Club. “I don’t think a life office has been set up on this basis before or since. They outsourced everything, the administration, the servicing of the policies, the investment management, the fund administration. The only things that were retained in-house were sales and marketing and compliance,” he says.
“Today you have big teams of people developing products. Back then it was just me and a couple of actuaries. I wrote the literature, did the procurement, and the actuaries did the pricing. We managed to launch three products in six months – an EPP, a Ssas and a Sipp,” says Lawson. “Unfortunately, that life company never had enough business going through it and ended up disappearing after the merger with Halifax. But the sales team are still there and I still go for a beer with them every now and then.”
Lawson has been at Standard through its transition from commission-heavy devourer of new business to selective player. Such is the nature of the business models of the intermediaries operating in the corporate market that it has been able to achieve this transition and build a position as the biggest player in the group pensions market in the UK, a position reflected in its triumph in the Corporate Adviser 250 Adviser Survey at this magazine’s Awards ceremony last month.
So how does Lawson see the group pensions market shaping up in the run-up to 2012 and beyond? “Competition for pension schemes is going to be intense because any employer who wants to do anything has already done anything, so it is going to be a difficult sale. But there is still a big angle there for corporate advisers to speak to employers who have not done anything already,” says Lawson.
“Whether that business will be attractive to the manufacturers is another question though because most of it will be on a minimum of 8 per cent of banded earnings. If most of the employees are towards the top of the band and if there is low staff turnover, then you might find that you will get a price for the scheme. If it is high staff turnover, the manufacturers will be quite happy to allow that to go into personal accounts.
“You can see enormous competition for the largest of the existing schemes at the moment. There are cutthroat prices out there for large existing schemes, which are mainly done on a fee basis. What I really fear for is the commission-based corporate sector. That is going to be the one that is ultimately going to find it difficult to survive. If they are not already making plans to try and migrate to a fee basis than they should. Commission adds an enormous amount to the price and to break-even point for providers,” he adds.
“The economics will determine the outcome in this market. Friends came out of the market last year, Clerical have done, we came out four years ago, purely because the economics do not stack up. How do you know that the company buying the pension scheme will still be around in 20 or 25 years’ time, when you are hoping to break into profit? Providers can easily be losing in excess of £100,000 on a 1,000 lives plan if its sponsoring employer goes bust or even stops contributions.
“We are not seeing employers stop contributions yet, but we have seen it in the US. General Motors, Motorola and Sears have all stopped contributing to their 401(k)s,” says Lawson.
“But people still think they are going to be able to retire earlier than they actually will. My father worked for over 50 years and it seems ridiculous that I could retire after 39 years on the amount I have been saving given I will probably be around for a further 30 years,” he says, even though he benefits from final salary pension schemes with two of the largest players in UK financial services. Surely this leaves him in an enviable position in terms of pension?
“I have got money in HBOS and the trustees wrote to me and said we have a deficit that could be up to £5bn. £5bn is a lot of money for the likes of HBOS. You might say that it will be making £8bn a year again once it gets on top of things, but I think that it is questionable whether it ever will. A lot of that money was investment banking and not the core business of lending to you and I. It is difficult to see how the company is going to fill up that £5 billion black hole. Normally the trustees would have been able to have control over whether they call on the assets and decide whether the company goes bust, but in this situation because of the Government role, and because HBOS is too big to fail, the trustees do not have their full powers in this scheme,” he says.
“I do not know what guarantees the trustees were given in the background, but I hope they are worth something,” he adds.
He has little relish for the prospect of being thrown to the mercy of the Pension Protection Fund either. “The Government has always said that they are not going to be the guarantor of last resort of the PPF. So it has got two options, which are raise levies or cut benefits,” he says.
So, given the fact that Lawson has been an advocate of DC and transfers to Sipps, with the HBOS scheme yet to be formally revalued with its deficit of £3bn-£5bn, isn’t now the time to ask for a transfer valuation? Despite all the talk of transfers from final salary schemes, it is rare to hear of high profile people in the industry who actually do it. As the anecdote goes for laser eye surgery, the doctor who performs the operation is always wearing glasses. “I will ask for a transfer and if it requires a single digit critical yield than I will go for it. I would then keep it somewhere safe in the short term to wait to see what it takes for the market to bottom and feed it in.”
Many would think that a bold move, but Lawson has been a conviction commentator for a long time now. Translating that into his pension saving decisions would only be natural.
All about John Lawson
Herriot Watt 1982-83
Standard Life 1984-1993
Bank of Scotland – 1993-2001
Standard Life – 2001 to present
Married with two daughters.
Playing the guitar. Football. “I am a lapsed Hibs fan and can see myself getting a season ticket again when the kids are bigger.”
“Several, but setting up a successful sales team within Bank of Scotland where everybody achieved high levels of qualifications was satisfying. We created a culture where a tied sales force was better qualified than most IFAs and charged clients fees rather than commissions.”
Biggest annoyance in pensions
“It sounds quite a small thing, but allowing commutation for small occupational schemes. The Revenue did a great job on simplification. The long game has been to encourage the DWP to continue to remove the differences in social and labour law between occupational and contract-based schemes. They have removed protected rights differences. But then we get the Revenue bowing to pressure on allowing commutation from occupational schemes but not from personal pensions”