Putting things right with the lawyers

I’m pleased to see that efforts are being made to meet Mr N’s legal fees , working out how to get restitution to the Northumberland Police’s pension scheme. Though he was successful in getting back in the scheme, the ombudsman did not grant him his costs arguing that he could have fought the case without recourse to professional advice.

I suspect that the Pensions Ombudsman also had it in mind to slam the door shut in the face of countless ambulance chasers keen to make a killing on no-win no-fee deals in Mr N’s wake.

The fact remains that Mr N has not got the money to pay his fees and since he has opened the door to people similarly unfortunate, it is good that people are rallying around. I understand that there is a pending criminal case to follow, it is important that Mr N’s anonymity is maintained for the moment.

Putting things right with the trustees

I’m also pleased to hear that there is last a conversation being had between the person organising the victims of fraud’s affairs (Angie Brooks) and those acting as trustees of the majority of the derelict schemes which the scammers used to steal the victim’s money.

We shouldn’t forget that the first port of call, to finance the restitution of Mr N’s pension will be the London Quadrant pension scheme – or what’s left of it after pillage from the original scammers.

The judgement will no doubt have come as a surprise to the trustees who are now subject to the unwelcome scrutiny of those seeking these funds (ironically the police pension fund). While I am sure that nothing is amiss in the trustee’s management , I am sure they feel that further claims on their primary source of remuneration (the remaining member’s fund), less than helpful.

Of course the vast majority of the management fees in cases like this are to lawyers.

Calling casuistry when you see it!

If you’re beginning to detect an anti-lawyer thread in this blog, you are right. Thomas Jefferson famously said “It is the trade of lawyers to question everything, yield nothing, and to talk by the hour”. The lawyers have been talking by the hour over the Pensions Ombudsman’s determination against the Northumbrian Police and for Mr N and the London lawyers are very far from happy.

That is because no ordinary person can afford a London lawyer’s fees , meaning that they rely solely on trustees, regulators and employers for a maintenance of their very reasonable lifestyles.

These lawyers have no masters but their clients and their clients are under threat from Mr N and his like.

Let us remember that Mr N took financial advice from a regulated pension transfer specialist – as he was told to by the FCA. He transferred his money out of his defined benefit pension scheme – as he was advised to by his IFA. He transferred his money into an occupational pension scheme that had been given its status by Her Majesty’s Revenue and Customers and he sought restitution as he was supposed to, through the Pensions Ombudsman.  The only thing that Anthony Arter found he had done amiss, was to employ lawyers.

As I have written earlier, Mr N is a hero

But this has not stopped the lawyers from finding Mr N to be the architect of his own demise..

In an opinion piece, published in Professional Pensions, Edward Brown , a pension  lawyer at Hogan Lovells has delivered the following judgement on Mr N.

It is easy to feel sympathy for Mr N – who has potentially lost all of his benefits in a scam. But it is a regrettable feature of 21st century life to conclude that if something bad happens to someone then someone else – with the means to pay – must be at fault. One can conclude that the authority is not to blame without needing to believe that Mr N is the author of his own misfortune.

This is extremely sophisticated (as in employing sophistry). Without committing himself to any view, Edward Brown allows us to read that Mr N is the author of his own misfortune. What does Edward Brown think? Does he subscribe to the views of 21st century life or not?  Who is this “one” that’s making this conclusion? There is not “one” voice here – but several – the inference is clear as  the lawyer dances on his pin with glee.

Edward Brown hides behind periphrastic phraseology and earns significant brownie points from other lawyers for implying Mr N is the architect of his own misfortune – without calling him it.

This kind of thing may work in legal circles Edward Brown, but it does not work with me.

I hope that Edward Brown has the opportunity in time to meet with Mr N and with others like them. They are the people who uphold the law and who assume that IFAs and pension scheme trustees and fund managers are honest. They do so because they believe in the legal system, the HMRC, the FSA (as it then was) and the Pensions Regulator.

For a member of the legal system to infer Mr N the author of his own misfortune is tantamount to siding with all the breakdowns in the judicial system that led to an innocent man – who did what he was told -being put through three years of intense anguish.

But of course Edward Brown said no such thing – the rhetoric said it for him. This is worse than sophistry – this is casuistry. This is the use of the legal system to say one thing and get away with saying it altogether.

Natural justice alive and well in the 21st century

I have sat in the Royal Courts of Justice and seen the treatment meted out to the victims of the Ark Pension Scam, people like Susan Flood (who can take some comfort from this determination). I have seen lawyers call on judges to “poke the victims with sharp sticks”. I have seen victims break down in tears for shame of their actions – when they have behaved admirably. All this has happened because of the cruelty of lawyers who have apply the letter of the law not its principles, who push legal niceties before natural justice.

I have had the chance to meet Mr N  and speak with him. I know other members of the Northumbrian Police Force and no-one thinks Mr N a chancer – he was and still is a very good policeman.

It is extremely hard for us privileged professional class to have any idea of how hard pensions are to them. Mr N put his trust in the system and agreed to pay its fees and he was let down – not just by those who advised him, but by those who could have protected them – and according to the Pensions Ombudsman’s verdict – didn’t.

Mr N had one advantage, he was not intimidated by lawyers. That is why he persisted and why he is back in his scheme.

No doubt there will be many training courses arranged for trustees by lawyers to help trustees do the due diligence that Northumbria Police did not do. No doubt there will be administrators looking at their files for instances of their allowing transfers into London Quadrant and schemes like it. No doubt there will be a few squeaky bums in the offices of some of the IFAs – over the forthcoming criminal proceedings and no doubt lawyers will be making money from all of this.

Lawyers are paid to keep people on the right side of the law, they are not paid to vilify those who do the right thing and then get ripped off.

This message to Edward Brown and anyone else inferring  Mr N “the author of his own misfortune”, is that they remember there is a higher law than that which we serve – there is natural justice, I applaud Anthony Arter for siding with natural justice.

Edward Brown

I am submitting evidence on behalf of AgeWage, a company set up to help people work out if they are getting value for money from their pensions (and pension advice).

I am a Director of First Actuarial and Founder of Pension PlayPen. I appeared before the Committee with BSPS members as part of the Pension Freedoms Enquiry, I blog as the Pension Plowman at henrytapper.com.

AgeWage wishes to submit evidence because its founders, (myself, Ritesh Singhania and Dr Chris Sier) believe that transparency is the best disinfectant to clean up pensions tarnished reputation.

Contained in our response and the blogs that expand it is a blueprint to make pensions and pensions advice more transparent.

Our response to the enquiry is set out here. Longer responses are available via links to blogs at the end of each section or by searching henry.tapper.com

1. Higher-cost providers don’t generally deliver higher performance, and usually eat into clients’ savings. So long as we have the right data and the means to analyse it, we can answer that question “fund by fund”, “product by product”.  The aggregate of all the answers will eventually enable us to generalise. There is no short cut – the task is massive but it is one that is within the compass of data scientists and one that the pensions industry could and should undertake, more about our view here.
2. The Government is doing a good job ensuring that workplace pension savers get value for money. The responsibility for making workplace pensions work, is all of ours. We should be relying on Government to create the framework, we should adopt best practice as a matter of course, more about why we think so here
3. We see regulating providers as more important (for Government) than empowering consumers. We need better products, products first – empowerment second. – You Should not empower people to make good use of poor products. The regulation of pension products for auto-enrolment by both FCA and tPR has been a success – they’ve kept a proper market going, driven away the crooks and it looks like we’re moving towards a future where we can draw our pensions collectively. More of the same please! A fuller explanation here
4. We see three ways to encouraged savers to engage with their savings either we can convince people to engage directly with their investment, or we can get people to engage with stewards or we can offer digital engagement. But we should be wary of ever expecting most people to pay much attention to their pension, most people just want to “know where to sign”. Find out more here
5. Investment transparency is more important to savers than they know (or experts are prepared to admit). People cannot be expected to know the unknowns. The onus is on those expert in pensions to make pension investments clear and comparable. “Value for Money” is a way of thinking about what we have, which makes pensions easier to understand and manage. We explain this here.
6. If customers are unhappy with their providers’ costs and investment performance/strategy, there barriers to them going elsewhere. Currently the system is set against people moving. It’s hard for people to know whether they are being penalised for moving, so in the absence of good information, they tend to stay where they are. This tends to reward the bad pension providers. More information here
7. Independent Governance Committees could be a lot more effective in driving value for money. We’ve analyzed the performance of over 20 IGCs and the odd GAA over the last four years. We think they suffer from poor recruitment and that they do not get to their members to find the real issues. They’ve done good things in ensuring providers cap charges and can do more in ensuring data flows to dashboards. We explain more here
8. Do pension customers get value for money from financial advisers who provide financial planning. Value for money from wealth managers is not so easy to find. We see plenty of product bias in the advice given by wealth managers and it looks like recidivism to a pre-RDR world. Those advisers who offer financial planning tend to have clearer charges which people understand. We explain the differences here.

We see a groundswell of support for Pension Transparency, evidenced in the work of the Transparency Task Force. We call on Government to recognise the Zeitgeist and support the work of Andy Agethangelou and his advisory committee.

We see Pension Dashboards as a way of bring transparency to ordinary people. We do not support the provision of a single dashboard but urge the committee to promote the conditions in which the private sector can give people access to their pensions and the information they need to manage them.

We call on the pensions industry to exert itself to help the 10m new pension savers who have arrived through auto-enrolment. Equally we call on Government to ensure that they have pension options when they mature, fit to retire on.

Henry Tapper

August 9^th 2018

Mr N has just been awarded reinstatement to the Police Pension Scheme at a cost of £135,000. It’s a done deal, the cost is to the Northumbria Police , to the tax-payer – and may be partially offset by the remainder of any money he transferred out (via a CETV) in 2013 into a scheme that’s since failed.

Mr N is a policeman, I am not using his real name so as not to prejudice impending criminal proceedings that are being taken against those who engineered the sorry transfer.

You can read the history of this case in the “decision” of the Pensions Ombudsman (PO-12763) published here. It was published on Tuesday, the day that Mr N found himself back in the pension scheme he left 4 years before.

The story’s made BBC news – but it’s implications have yet to be understood in the pension world. When they are, Mr N may become as important as ” Mr Barber”.

Why this is so important

There are thousands of similar complaints to that of Mr N.  They follow the same path.

• Financially vulnerable person approached by lead generator for “pension review”.
• Qualified lead passed to financial adviser with a Pension Transfer Specialist
• Vulnerable person sold an attractive investment option (without any real idea what he/she is buying
• Trustees sign-off transfer on basis that a Pension Transfer Specialist is in place
• Scheme goes tits up
• Vulnerable member suffers agonies of remorse when he/she realises what’s happened.

But Mr N’s story is different, because Mr N was very brave and very determined and he beat the system that was set against him. Mr N hired help and with that help he won back his pension rights to the Police Pension Scheme. Mr N is now facing a legal bill of £25,000 because he didn’t get costs.

Why Mr N is a hero

I don’t use the word “hero” lightly, I used it in my conversation with Mr N yesterday and I want to explain why I admire him here.

The system likes to quote phrases like “caveat emptor” at people like Mr N. “It was his own stupid fault”. Mr N heard a lot of comments like this. Like one of the steel men  we heard from at Port Talbot, this made him very sad, depressed and it damaged his self-worth.

In the four years, Mr N has suffered anxiety and  depression and the impact of the scam on him and his family was nearly disastrous.

But Mr N pulled through. He instructed his own lawyer and (despite incurring £25k of legal fees which he is liable for), he took his case to pensions ombudsman. The tale he has to tell of the support (or lack of it), he had along the way from the people he put his trust in (his pension adminisrator, his independent financial adviser and the pension fund he transferred into), is barely credible. All were intent on labelling him the architect of his own demise. If you don’t believe me – read Anthony Arter’s “decision”.

Even when the Pensions Ombudsman made his preliminary decision earlier this year, this pressure did not relent. As Mr N told me from his come in north Newcastle yesterday, it was only on Tuesday evening that he could relax with his wife and drink a glass of wine in celebration.

He still has the £25,000 bill to pay.

Mr N is a hero because he fought a system that was shamefully set against him and he won.

He was not entirely alone, Angie Brooks helped him, if you want to read the full story- follow the link. She admits that she couldn’t help him much but she helped him find the right lawyer and made sure Mr N knew he was not alone. Mr N was also supported by Jon Douglas, a journalist who lives near Mr N and has produced a news article for the BBC’s You and Yours program, you can listen to the episode here, the pensions article is at 26 minutes 30 seconds.

Mr N was listened to by the Pensions Ombudsman- Anthony Arter – who took the time and trouble to understand – produce a decision and stand up for Mr N. I am very proud we live in a country where people like Mr N can get such justice, Mr N has not just got Mr Arter (pictured above) to thank, he has the Pensions Ombudsman’s office.

What the judgement means

Each case taken to the Pensions Ombudsman  is dealt with on its merits and we should be careful not to suggest that this case is a PPI style bonanza for anyone who has lost money through a pensions transfer.

But this judgment means that there is now an avenue for redress, for people who since the rules changed in 2013, have been clearly scammed.

The judgement gives those who feel that those who administered their occupational pension scheme did not conduct “due diligence” on where the money being transferred went, can be held liable – if it went to a scheme which was clearly a scam. In the Pensions Ombudsman’s view, Mr N’s scheme  was clearly a scam.

Of course the Northumbria Police  are able to have first call on any money left in London Quantum – hypothecated for Mr N, but as he wrote  in a mail earlier in the year,

I’m sure (the trustees) are trying to succeed and do a good job but due to red tape etc just spend spend spend without result

There is unlikely to be much for the Trustees to recover from the scheme Mr N transferred to, despite there being a bull market since 2014.

The net result of the judgment is that the Northumbria Police will have to fund the cost of reinstating Mr N themselves (as well as paying Mr N a small amount of damages).

The wider impact on pension schemes

If you are the trustee or sponsor or administrator of an occupational pension scheme, whether DB and DC – you should shudder.

The Pensions Ombudsman’s judgement is explicit

Having considered all the available evidence, I am satisfied, on the balance of probabilities, that but for the Authority’s maladministration Mr N would not have proceeded with this transfer and suffered a loss.

To put matters right, the Authority shall reinstate Mr N’s accrued benefits in the Scheme, or provide equivalent benefits, adjusting for any revaluation that has arisen since the transfer

The papers the Authority failed to deliver

Maladministration

The Pensions Ombudsman found against the Northumbria Police  because it failed:

• to conduct adequate checks and enquiries in relation to Mr N’s new pension scheme; to send Mr N the Pensions Regulator’s transfer fraud warning leaflet; and.

• to engage directly with Mr N regarding the concerns it should have had with his transfer request, had it properly assessed it.

The impact on Pension Scheme Administration

Most pension administration is outsourced by trustees to professional administrators known as Third Party Administrators (TPAs).

TPAs have generally considered, till now – that they are not liable for the destination of the money, provided they comply with the Law.

1.under section 48(1) of the Pension Schemes Act 2015, scheme trustees must carry out a check on whether members have received appropriate independent advice before permitting a transfer of safeguarded benefits;

2.under sections 98(2) and 99(2A) of the Pension Schemes Act 1993, a member loses the right to a cash equivalent if the scheme trustees carry out this check but the check does not confirm that the member has received appropriate independent advice; and

3.appropriate independent advice is defined in section 48(8) of the Pensions Schemes Act 2015 as “advice that (a) is given by an authorised independent adviser, and (b) meets any other requirements specified in regulations made by the Secretary of State”.

But the Pensions Ombudsman goes well beyond that level of due diligence

96.Turning to the Authority’s comments in respect of being entitled to rely on the relevant statutory discharge, I have found that the Authority failed to carry out reasonable checks before transferring Mr N’s pension and for this reason I do not find that it can rely on section 99(1) Pension Schemes Act 1993. It did not do “what is needed to carry out what the member requires”.

“What is needed” includes appropriate review of the transfer application, taking into account the law and regulatory guidance. “What the member requires” could only be established by ensuring that the appropriate due diligence was carried out, any warnings or concerns identified and brought to the attention of the member, and that the member then went ahead with the transfer, on a fully informed basis.

Although the Authority says it would not have been able to prevent Mr N from transferring out, I have found that Mr N would have acted differently had he received the appropriate warning from the Authority. On the balance of probabilities, I have found that he would have withdrawn his request.

I could summarise this by saying that the Pensions Ombudsman found that the Authority and its administrator’s did not exercise its duty of care to Mr N and is paying a high price for it.

Where does this end?

There is already a long queue at the Pensions Ombudsman’s door, it includes a number of former clients of Active Wealth Management and other firms who advised steelworkers to get out of BSPS. It will now get longer as other former members of occupational pension schemes, seek to get back on board rather than rely on depleted pension funds investing in everything from Cape Verde property to the Strand Capital fund.

Were these claims all to succeed, the liabilities currently expected to fall on FSCS , could fall on trustees – or their TPAs or their TPA’s professional indemnity insurers.

So the Determination will be being read with some interest by all these parties.

Mr N is a hero – but I can see him being cast as a villain

I will say this now, and hope that I am proved wrong. Mr N is likely to be considered not as I have described him, but as a troublemaker who costs shareholders and pension managers and administrators and trustees and sponsors and insurers money.

I expect to see the Pensions Ombudsman’s decision being challenged. It may be that legal arguments will prevent others being restored to their schemes.

Mr N took the pain of the past four years, perhaps advantaged by his being a serving policeman who was familiar with the workings of the courts.

But the strain that doing so put on him and his family was severe and it’s hard to underestimate his bravery. The criminal proceedings are still to come and I don’t want to prejudice them by publicising this Determination in an irresponsible way.

But  I will finish, by commending the Pensions Ombudsman’s Determination to anyone who is interested in justice for those like Sue Flood (a pre 2014 victim) whose losses and sufferings are just as great, but who risk being forgotten.

We do a great thing in running pension schemes for people and we should be aware that sharks live in the waters that surround them. £36.8bn was transferred out of our schemes last year and not all of it went to good homes.  This Determination gives those championing the Pensions Regulator’s Statutory Objective “to Protect Members” , will welcome this judgement.

Mr N is a hero!

He is no villain – nor are other pension fraud victims

This article was first published in Professional Pensions.

Machiavelli’s commented that “there is nothing more difficult to carry out nor more doubtful of success nor more dangerous to handle than to initiate a new order of things”.

For the DWP to enable Royal Mail to offer its 141,000 workforce a DC pension that pays a wage for life undoubtedly falls into the “new order of things” category and is confirming the dictum.

The criticisms of CDC range from IFAs who call it “with-profits in disguise”, through policy makers worried it carries with it risks of inter-generational unfairness. Add to this worries about nuts-and-bolts issues on scheme communication and it’s not hard to see why regulatory progress since Pensions Act 2015 has been so slow.

These are valid challenges to CDC. If CDC cannot demonstrate that it can be more transparent than with-profits, that it insures across rather than between generations and that it has proper nuts and bolts– it will fail. The next 18 months will determine whether the abstract arguments for CDC can be turned to practical application.

That the Work and Pensions Committee announced an inquiry into CDC while Royal Mail and CWU were finalizing their Four Pillars agreement is unlikely to be a coincidence. As their final report puts it, the agreement

“As well as being a model of constructive industrial relations… opens the door for CDC to move from abstract idea to practical reality. This could transform the UK private pensions landscape”

The Committee calls on Government to open the door not just to Royal Mail but to “accommodate mutual, multi-employer and standalone schemes”. The Committee hints at a broader vision where CDC pensions become a default investment pathway for people transferring-in DC pots. It specifically talks of CDC as a means for the self-employed to provide themselves with a replacement income in later life.

This is precisely the innovation that the FCA has been calling for in its retirement outcomes review and it is unfortunate that the Committee’s report was not published prior to the FCA’s review’s findings.

The FCA will no doubt be looking with interest at the Royal Mail solution in the light of its finding that 94% of us are not taking financial advice on retirement affairs. The simple choices for members around CDC (to join or not to join), make such schemes attractive to the silent majority who are showing no aptitude for or interest in engaging in pension matters.

The advantages of open collective schemes are also evident in investment strategy. Since CDC schemes would remain open across generations, they could invest in patient capital projects with commensurate benefits in terms of investment performance.

The long investment horizons encourage the kind of investment strategies that characterised the early days of Defined benefit investing when the emphasis was on buy and hold growth strategies rather than liability matching. The implications for our wider economy of collective schemes returning to these principles appear entirely beneficial.

Finally, and most intuitively, CDC makes sense as a means of solving one of the most intractable of economic problems, the money to set aside to provide yourself a wage for life. Pooling longevity risk creates a mutual settlement that eschews both “boring” annuities and “scary” drawdown

All of which, begs the question, just why is this “new order of things” getting such a lousy reception?

Is it, as Machiavelli supposes, that

“the reformer has enemies in all those who profit by the old order, and only lukewarm defenders in all those who would profit by the new order; this lukewarmness arising partly from the incredulity of mankind who does not truly believe in anything new until they actually have experience of it”.

I’ve talked about the impact of higher transfer values on people living in Port Talbot and Redcar, and in the British Steel Pension Scheme. Around March last year, those transfer values in some cases doubled. Why?

There were two reasons.

1. The scheme moved to a single discount rate for all members
2. The scheme started de-risking – moving from a growth based strategy to a “lower-risk”, bond based investment approach.

What this did was to lower the discount rate applied to transfers , increasing transfer values, especially for the younger members (who had previously seen transfer values depressed by higher discount rates).

Apart from the small kicker to transfer values brought about by a cash injection into the scheme in the summer (bringing the reduction from the insufficiency report from 7% to 5%), these two reasons were perhaps the biggest contributors to the run on the scheme that happened in the autumn.

The perverse impact of de-risking

What a sudden shift from growth to defensive investment strategy creates is a big hike in the transfer values for the benefits of deferred members. This is – as far as I can see , ignored in the Pensions Regulator’s guidance on funding but shouldn’t be.

As CETVs are only available to a proportion of DB scheme members, the uplift in transfer values is a perk just to those who are not drawing their pension. It’s paid for primarily by the employer (through the special contributions needed when growth is taken out of the actuarial assumptions – the scheme discount rate).

This creates all kinds of conflicts within the scheme, especially where those driving the shift to bonds stand to benefit by high transfer values. It is one of the few areas of remuneration not covered by modern governance, but Directors of large companies with DB schemes, can profit from de-risking with no declaration that they have been both author of and beneficiary of , the improvements in transfer values. They can do so – simply by taking their transfer value.

It also creates a feeding frenzy for advisers and the long-tail of lead generators on one hand and fund management flunkies on the other – all of whom share in the financial orgies  we have seen in Port Talbot, Dagenham (Ford) and the Leeds conurbation (HBOS) – to give but three examples.

These conflicts – between the interests of members (in terms of more secure funding) and the interests of members (in terms of higher transfer values) have not been properly thought through by policy makers.

The perverse impact of de-risking a scheme’s investment strategy, is that it rewards deferred members at the expense of pensioners and it requires trustees to pay out their hard-fought prudence to people who have no interest in being ongoing beneficiaries of the scheme.

The absurdity of regarding these transfers as “de-risking”.

I have heard it argued, in learned actuarial circles, that because CETVs are calculated on “best estimate” terms and the scheme’s accounting position calculated on a formula closer to “buy-out”, that every transfer paid – is a step closer to scheme solvency.

This is nuts, it is a step closer to “buy-out” with an insurance company, but it is step further from doing what the scheme set out to do – pay a wage to life for its members.

It is only in the febrile world of “de-risking” , that an understanding of the wood could be so lost by the view of individual trees.

The best DB scheme is a scheme that stays open. Encouraging the taking of transfer values by enhancing or even promoting transfer values risks giving away the prudence in the scheme’s investment profile to those few members with the transfer opportunity.

Democratising the opportunity to transfer is not the answer

The current madness is about making it easy for all deferred members to share in the spoils of DB schemes. This is the argument being used for maintaining contingent charging. It argues that members without the financial capacity to pay for the advice on whether to transfer, should be able to do (in a tax-advantaged way) after the transfer has been paid. There is no logic in this argument – if you consider that most people shouldn’t transfer.

Of course, the richest members can pay the “exit penalty” which is what transfer advice is currently seen as. If a member can see they are benefiting from the overdose of prudence – (a simple calculation dividing the pension forsaken into the CETV), then the advice simply becomes a compliance ritual on the way to the payment of the transfer.

A friend last week asked me what his wife should do. She has just discovered her CETV is worth more than £2m. I was forced to explain to him her options. He was both appalled and delighted; appalled that she could be given such a grant without any public financial declarations and delighted that it allowed them both  – a windfall payment that could fund their future business.

He understood the conflicts , but legally neither he nor she has to declare them. Why should they. The CETV will remain their guilty secret. So it goes for tens of thousands of our new pension millionaires.

And yet…

With equity markets at all time highs, with a world economy looking in fine shape and a UK economy seemingly impervious to BREXIT, what could possibly go wrong with managing your own pot?

UK Defined Benefit Schemes, with the benefit of crippling special contributions, have finally worked their way into the black.

But they have done this while giving away much of the family silver (£34.25bn in 2017 alone). Rather than paying out that amount as pensions – as originally intended by HMRC and those who set up these schemes, trustees have paid this amount out – mainly to the richer deferred members, to fund wealth management programs.

Each of these programs is now taking on the burden of funding individual retirements (though we have seen in recent blogs that some are simply being used for IHT mitigation).

The perverse windfall to the rich

I am not a conspiracy theorist. I don’t think that CETVs is a plot hatched by advisers and trustees for the benefit of cronies with large deferred pensions. I am not saying that the Pensions Regulator was complicit.

I am saying that this is the perverse consequence of the drive to de-risking, the mania for self-sufficiency, the blue funk that is called the “glide – path to buy-out”.

It is only one of the consequences, but it is a major issue for schemes big and small. Small schemes can see huge slices of their assets and liabilities walk out of the door in one transfer. Big schemes can see multiple transfers which add up to the same thing (Barclays lost  over 15% of its scheme in one year to CETVs).

Nothing much will be said about this, unless I say it, because nobody who understands it , doesn’t have some skin in the game. Even the Pensions Regulator – is to a degree – compromised by insisting on “prudent” investment programs.

It’s time we came clean on this issue and recognised that one of the reasons for the glut of transfers – is because of the value of transfers. Transfer values are so high, because schemes are de-risking, schemes are de-risking because advisers and Regulators tell them to de-risk.

What does  not seem right, is the ease with which the prudence earned by schemes through special contributions from employers can be dispersed to the senior employers of the companies sponsoring the schemes.

What does not seem right is that many members in these schemes (or all financial make-ups)  are taking CETVs with little understanding of where the money is going and what the cash-flow consequences for them or their families might be.

These seem very real problems for the Pensions Regulator today and tomorrow.