I’ve been writing this week about the small pension policies that most of us have “lying around” in some drawer or other. Maybe they came from well intentioned pension savings plans that just couldn’t be kept up, maybe from company DC schemes that lasted as long as you did with the company. Perhaps you took a decision to contract-out for a few years…. and maybe mixed in with all the little policies are some quite big pension entitllements from the years you’ve been paying national insurance and been entitled to defined benefits from a works “DB” scheme.
Even if you can remember all the schemes you’ve been in, you probably don’t know who manages them today. Company pension schemes get taken over like companies, insurers buy-out other insurers and you change your address. Look at the piles of letters from financial services companies in your letterbox , I bet as many are for previous occupants as for you!
It’s quite clear who is paying for not having a central register of pensions- the likes of you and me!
- There is no obligation on companies, trustees or insurers to track us down- we need to trace our pensions
- The moment that we stop our contributions we move from being a customer to being a problem, an “active” to a “deferred”
- The new technology that promoted thorugh corporate wraps, pension apps and the like is almost entirely focussed on active contributors
It is quite clear that the alignment between policyholder’s interests and an insurance company‘s spend is defined in terms of profitability to the insurer not in terms of member outcomes. Insurers have historically protected themselves from poor profitability from small pots by levying management fees of up to 6% pa. Insurers have been prohibited from doing so for most new policyholders since the intriduction of stakeholder pensions but have chosen to spend their future management fees buying distribution rather than on initiatives such as keeping in touch with those with small pots.
The insurers have spent unwisely in chosing to line the pockets of their distributors. The Government have stepped in and through the introduction of auto-enrolment and the implementation of the recommendations of the Retail Distribution Review, they’ve taken decisive action to shift the focus from selling “pensions” to making “pensions” work.
What they haven’t done (yet) is require the insurers (and by extension the trustees of occupational DC schemes- most of whom invest with insurers) to take positive steps to improve these policies at the point when they really matter- at retirement.
The Association of British Insurers have reluctantly agreed that they could do more to promote proper shopping around for annuities and have promised a new code of practice that alerts people to the dangers of purchasing the first offer that comes their way (seal clubbing). This is too little.
The question of who pays for a register of pensions is easily answered, the insurers should pay and where trustees chose to go it alone- they (or their sponsor) pays. I am sure that the ABI will whine about this , talk about impossibly thin margins and warn of price increases for members but the reality is that we are still paying over the odds for most of our pensions and the insurers are continuing to run both their current and legacy books at a helathy profit.
While the insurers have been very good at preventing the idea of a register of pensions getting off the ground (Stewart Ritchie suggested much the same thing a few years ago), consumer groups have been very bad at lobbying for effective change. I’m hoping that the new consumer champions, Martin Lews. Paul Lewis, Alan Higham, Andy Young and the proper journalists who can speak with freedom, will get behind ideas such as this.
It only takes a few people to start a mexican wave of tens of thousands.
- Bill Whitehead’s drawers (henrytapper.com)
- Search “my pensions”! (henrytapper.com)
- Putting your staff before your pension scheme (henrytapper.com)
- Aspirational pensions – popcorn pensions!! (henrytapper.com)
- Who made that choice for you? (henrytapper.com)
- Define your aspiration. (henrytapper.com)
- The NAPF point the finger at the £1bn annuity scandal (henrytapper.com)
- Sorting the pensions of the “squeezed middle”. (henrytapper.com)