Mrs Higham’s letter

There are three things troubling me this morning  – four if you include the outcome of Wales v France in the Rugby World Cup.

For the purposes of the next 1,000 words I’ll concentrate on them in reverse order of importance

  1. The Bridge judgement
  2. The Nortel/Lehman judgement
  3. Mrs Higham’s letter/

The Bridge judgement is a ruling that says that you cannot make promises to guarantee a lifetime income  without the hoopla that surrounds a defined benefit  pension scheme

The Nortel Lehman Judgement says that the assets of a company that makes pension promises it cannot keep can be wound up and their assets confiscated to meet those promises.

Mrs Higham’s letter says this

Dear Mrs Higham

You have £30,000 of retirement savings that you need to decide how to turn into an income. You have one chance to make a good decision as you cannot normally change your mind later on.

The difference between a good decision and a bad decision is typically worth £6,000 (it could be more or less depending on your personal situation).

In the enclosed pack you will find all the information you need to make a decision.

We understand that this decision is difficult and complicated. The Regulator recommends that you seek independent financial advice should you need any help.

You will find an adviser who specialises in helping people like you on retirement at: www etc or by calling 0800 xxxxxx.

All the advisers have agreed to a code of conduct which includes the guarantee that you will not have to pay anything to them unless they can make you better off.

Please take the time to make the right decision for you.

Your pension company.

Why Mrs Higham’s letter is the most important of the three is simple. It establishes a principle that impacts 40,000 people a month, that people should be treated fairly at retirement and that the 20% of people’s pension that is typically poured down the sink when people don’t focus on how they take their pension – IS NOT LOST.

Why I want to write this down is that over the next three months the Bridge and Nortel Lehman judgements are going to be all over the pensions press and may even make national news. Meanwhile Mrs Higham’s letter will be filed in the DWP’s “too difficult” draw.

To be frank neither Bridge nor Nortel/Lehman  are going to touch the lives of the common man. Here’s the DWP on the Bridge case;

The legislation will make it clear that benefits cannot be regarded as money purchase benefits if it is possible for a funding deficit to arise in respect of any of those benefits


Here’s a commentator on Nortel/Lehman

The Nortel/Lehman judgement is considered bad for business, bad for pension schemes in general. It will leave groups with large pension funds  unable to obtain debt or bank financing, or at high cost – increasing the incidence of insolvencies or harming growth

By contrast we have Mrs Higham’s letter

Mrs Higham’s letter was devised by Mr Higham- not Mrs Higham’s husband but her son Alan. Alan is someone who is something of an unsung hero for thousands of people who had rights in UK pension schemes. He was instrumental in restoring them after the first great mis-selling scandal.

It might be a bit much to call what is going on now the second great pension mis-selling scandal but frankly the amount of money being poured down the drain as a result of mis-buying will dwarf the losses incurred in the nineties.

Mrs Higham’s letter is a sensible measure to simplify the problem that people have when they retire to manageable proportions. It gives people a clear choice – pour your money down the sink or do something about it. Clearly that was too obvious a solution for some at the DWP – but you decide, read Alan’s full blog here.

 Here is the DWP’s – well at least its pension regulator’s response to Mrs Higham’s predicament;

Trustees of DC schemes must offer the Open Market Option all members in accordance with the Finance Act 2004…and provide specific information to those members at least 6 months before their intended retirement date.

These communications must be effective and engaging to ensure that members achieve the optimal income for their DC saving as often their decisions at retirement cannot be reversed and will affect  the income members and their dependents receive for the rest of their lives.

 Not quite Mrs Higham’s letter – not even  getting there. The Regulator seems to consider the use of an open market option sufficient despite the high proportion of DC members who are entitled to impaired annuities or could benefit from advised alternative annuities points well made by Tom Mcphail and PICA.

And where does this statement appear? It appears in the Regulator’s  “The Role of Trustees in DC Pension Schemes” published in October 2011. Despite the fact that 20% of the DC pot is at risk from not taking this advice, the advice  is relegated to the final paragraph of the appendix on the penultimate page of a 9 page document.

There is one statistic that stands out above all others, while only 33% of people purchasing annuities from contract based plans use the OMO only 25% use the OMO from occupational schemes.

Let’s be clear about this. Occupational Pension Schemes are the worst offenders in this area, the lack of good retirement decision one of the areas of DC inefficiency and the Pensions Regulator relegates the issue to the last paragraph of the appendix of its guidance to DC trustees.

Let’s hope that rather than be diverted by the Bridge and Norton/Lehman cases, the DWP will  focus again on Mrs Higham and her like  – all 40,000 a month of them. The fate of these people, the baby bulge reaching 65 is one of the pressing pensions issues of the last two decades and it barely rates a mention. 


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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