Sometimes people’s comments on blogs are more interesting than the blog itself- this is certainly the case in a blog I wrote last week on “Enhanced Transfer Values” the thrust of which is that there are better ways to de-rsik defined benefit pension plans than by giving members cash bungs to transfer out theirguaranteed rights.
The comments came from a linkedin group and for those not familiar with linkedin groups here is the comment trail which I publish as it appears.
Henry Tapper Better ways to de-risk than ETVs?
Certainly we’d be better off avoiding the kind of publicity occupational schemes got in the Daily Mail this morning- what do you think?
There are better ways to de-risk than ETVshenrytapper.com
Peter Flanagan (Pension Director at IMI)
• I am astonished at the biased reporting of this option. I had the mis-fortune to be off work sick for a day recently and couldn’t believe the number of adverts for quick cash (wonga.com etc) – some of these showed APR’s over 4000% (yes I did get the number of noughts correct). If the alternative to taking a cash incentive from an enhanced transfer value is taking out such a loan who are we or the Daily Mail to say it is a bad idea.
Henry Tapper •Peter
There are a few better ways of borrowing short term than wonga (not hard)..
is an interesting organisation- a mutual that lends money from those with capital to those needing it.
Here’s an interesting discussison on Martyn Lewis‘ moneysaving expert site
I’m really concerned when I hear that people are messing with their pensions for short-term cashflow , surely we can point them towards better forms of finance or have I just put my head in some regulatory noose?
Peter Flanagan • Henry
I wasn’t promoting it as a good idea but this is what people are doing (without screams of protest from the media) – what I was saying is the individual is best placed to understand his/her own finances and for some short term cash is far more important than the actuarially discounted value of their pension.
Henry Tapper • Sorry Peter- I wasn’t supposing you were!
But it begs the question of whether employer are wise in using cash incentivisation for ETVs (and trustee’s to go along with it)
If there is such financial hardship (and/or ignorance) within the workforce, isn’t there a pressing need for some straight talking from HR?
The pensions industry is going to take a real kicking for these cash incentives and the Mail will not be the last to put the boot in.
In my view, employers need to be sensitive to this and to the warnings coming from the DWP and tPR
Peter Flanagan • I disagree – why is financial education an employer’s responsibility? All Db plans have to offer a t/v by law – how can an enhanced t/v be a bad option? Unless the government is wrong to force db plans to provide t/vs. If done correctly (with good communication and financial advice) I believe the provision of an ETV can help members – particularly those being duped by those offerring expensive credit which is a far bigger problem than etvs. That is something for the DM to get excited about – stop Wonga.com now!
Paul Findlay • (Head of Annuities at Alico) Peter
I agree to an extent.
To some, the requirement to buy a car to work or a deposit for a roof over their head is more important and necessary than as you describe the discounted value of their pension benefits. Some in the pension world are too myopic and fixated solely on an individual’s retirement rather than their needs during the individual’s life.
However, confusing a one-off loan from a day lender with a cash offering from an ETV; isn’t the same. If a individual constantly requires a day lender at the end of every month, I would suggest looking at the person’s lifestyle.
Not all people with a defined benefit scheme are lucky enough to live on the same wage as an actuary or consultant. :-0
Peter Flanagan • I used the “day lender” as an example for argument as it shows how cash now is incredibly important to some of our members who otherwise would use such readily available cash. To extend the point many also have significant debt on credit cards – to simply think of what return can be achieved by investing the transfer value in today’s markets is over simplified actuarial thinking. If the money can be used to pay down existing expensive debt, or to pay for something necessary that would otherwise be financed by expensive debt then it is correct to consider the saving. This is why Independent Financial Advice and not generic financial education is the key and why for some an enhanced transfer value is a valuable option.
Paul Findlay • Now that I definately agree with.
John Reeve •(Premier Pensions) It seems to me that much of the bad publicity surrounds the use of “cash incentives” in these cases. In many cases I have been involved with there is no cash incentive and the “enhancement” is a pure addition to the TV. Peter gets it 100% right when he asks how this can be wrong!. If a TV is a statutory right then by dint of the english language an “enhanced TV” must be a better bet!
The other consideration is that many people with high benefits in a DB scheme (more than £20,000 p.a from all sources) is likely to want to transfer out at retirement anyway to get the advantage of the tax breaks now available.
Finally, in Henry’s excellent blog he refers to those “seriously ill” in fact you do not have to be seriously ill to benefit from enhanced annuities. Even relatively minor (and certainly common) ailments can entitle you to beter benefits.
In summary I think the arguement about ETVs is all wrong. We should be encouraging Trustees to offer better value for money for those looking to transfer. If that is called an enhancement then it should be encouraged. Along with help for members to make the right choice at retirement (DB as well as DC members) would add more to the benefit of members than the current view that “enhancements are wrong”.
- There are better ways to de-risk than ETVs (henrytapper.com)
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- “You’re on your own in retirement” claims blue-blood at Pension Play Pen lunch. (henrytapper.com)