Latham had to work with construction's myriad reactionary trade associations and institutions, but still managed to show that reform was necessary and achievable, and to say what the ground rules of a new industry should be. Much to the establishment's wrath, Egan chose free-thinking individuals for his taskforce, many of whom were experienced clients. The original Movement for Innovation membership was also free from institutional vested interests, and it established Rethinking Construction as a blueprint for the industry's future.
The lesson is that if you need to reform an industry encumbered with centuries of inefficient traditions and restrictive practices, don't ask that industry's institutions to help you – ask its long-suffering clients. Funnily enough, these thoughts came to me during a CBI conference on the future of pensions. It occurred to me that the pensions and insurance industry is remarkably like construction in its background, structure and weaknesses. Take the following points for comparison:
- It has customer-unfriendly products that fail to meet suppliers' claims or clients' expectations.
- It has a fragmented structure complicated by confusing, inefficient and often barmy supervision by the Treasury, the Inland Revenue and other regulators, all pursuing their own agendas.
- There is a lack of focus on the customers' needs.
- It has failed to anticipate inevitable changes and to modernise.
- Inefficient delivery systems have resulted in misselling and litigation.
- It is currently facing the most serious financial crisis in its history, as was construction in the early 1990s when Latham started his work.
The reasons behind the demise of the pension industry's flagship product, the final salary or defined benefit scheme, illustrates the industry's malaise. Defined benefit schemes are incredibly complicated for trustees to manage and for their members to understand. They must have actuaries, auditors, investment advisers and administrators. These schemes are, therefore, expensive to run and employers have to top them up if they are depleted through taxation or falls in the stock market.
The pensions industry is structured more for the benefit of the industry and the Revenue than for its customers
That is one reason why employers are closing their defined benefit schemes. Another, more serious reason is that, like most other UK pension schemes, they provide a poor return – only 5% on a lifetime's saving. If you expect a pension of £20,000 a year, then you will have to accumulate a total fund of £400,000. Don't panic when you check what yours is currently worth, as all investments are at a historic low, but you'll see what I mean about poor returns.
In other words, just like traditional construction, the pensions industry, its services and products are structured more for the benefit of the industry and the Inland Revenue than for its customers.
Andrew Smith, secretary of state for work and pensions, has promised to give us a green paper on the future of pensions for Christmas. Unfortunately, the spin from the Treasury and the TUC is about making the customers (that's us) pay more into these schemes. There is no sign that the government intends to modernise its own pension policy, nor that it will insist that the pensions industry modernise its structure and products.
Colin Harding is chairman of Bournemouth-based contractor George & Harding.