The survey revealed that, in spite of this, just under half (49%) of respondents, felt their investments reflected their attitude to risk. For almost three quarters (74%) of savers aged 25-54 this was a low to medium risk tolerance.
Head of corporate marketing Ann Flynn said the findings were slightly alarming and suggested people were shying away from making active decisions on funds.
She said: “On one hand, the majority of people told us they are not familiar with the pension funds in which they invest. However on the other hand, half said they still feel confident that they are in the right investments for them.
“These are conflicting messages, and very worrying when you consider that fund selection plays such a key role in determining how much you will receive in retirement.”
I used to do member meetings when putting in Eagle Star and later Zurich DC plans. For a long time I was the only authorised adviser they had (because I was so compliant!) and I did hundreds of meetings at factories, aerodromes, quarries and offices.
My favourite question was
“do you know what fund you are in?”
and my favourite answer was
“the one you told me to be in”.
I particularly liked getting that answer when I was being inspected from some goon from KPMG or internal audit or best of all some gnome from Switzerland trying to discover the risk that I was creating with my “financial education“.
As the words “the one you told me to be in” resonated around the room, I would watch the goon shrivel like a salted snail. Clipboards would be raised and the words “the one you told me to be in” inscribed.
“oh so you’re in the default fund then..”
“any idea how it works?”
No one had any idea how the default fund worked or at least could be bothered to tell their mates. No one likes a clever dick and in any event, that was my job and they knew it.
One time a bloke stood up and said something like
“we’re in the default fund because if it worked out we’d be alright and if it didn’t , we’d sue Eagle Star”.
If I’m right in memory he worked for a French Bank called Credit du Nord, whenever I went in there , they’d laugh at me and shout
“who do we sue – Eagle Star”.
No one has yet taken an insurance company to law for poor fiduciary management of the default fund or the other funds offered on their platforms.
If you think about Standard Life’s conundrum you can quickly work out that the problem isn’t with the punter, it’s with the risk management teams of the insurers. These DC pensions are set up with hundreds of investment options from which members can select at will.
That the members do so in a clueless fashion is evident from only 10% even remembering what they chose.
The best thing that can be said for the default , if you an insurance company risk manager is that it might get “safe harbour” protection. Meaning that provided the insurer had been seen to have exercised proper control over the way the default fund worked people using it couldn’t come back later and say
“oh , if only you’d told me about the outer-mongolia special situations fund – I’m suing you for relative underperformance”.
That said, what the bloke said makes absolute sense. Why should anyone take decisions on something as important as their retirement by investing in funds which they know nothing about and pay so little attention to their choices that they can’t remember what they were within a couple of days?
Of course the myth that
“fund selection pays a key role in the amount you get in retirement”
is perpetuated by the insurers because so many of their products are no more than fund platforms. Fancy selling someone a SIPP (self-invested personal pension) where you can chose whatever fund you like (and pay fat fees for the privilege) and then telling them that they’ve got about as much chance of picking a consistently winning set of funds as backing the winner of the Derby for the next 25 years.
So what’s the moral of this little article
- People should stop peddling fund platforms as a snake-oil alternative to properly funding DC plans
- Insurers should be wary of promoting SIPPS and other multi-fund products as mass market retirement solutions
- Insurers , advisers and most of all investors should spend more time on the things they can control fund charges, proper administration and most of all realistic contribution rates, rather than chasing after rainbows from the fund management industry.
- Most of all, this means investing time and effort in making defaults as good as possible. This means bringing down fees, ensuring the right asset allocation and taking no unnecessary risks.
I was quite encouraged reading this article. People didn’t know the detail but they were able to articulate at a philosophical level what they were up to.
However on the other hand, half said they still feel confident that they are in the right investments for them
I suspect that a fair number of that “half” are in defaults and whether their fiduciaries are insurance companies or occupational trustees, their confidence is based on trust – if not in the professionalism of the fiduciary, at least in his Professional Indemnity Insurance.
- How shares work (for us and our pensions) (henrytapper.com)
- I’ve just worked out why wrap rhymes with crap (henrytapper.com)
- How can you tell if your pension’s any good? (henrytapper.com)
- What have the Australians done for us – not much! (henrytapper.com)
- More pensions nonsense from the “investment community” (henrytapper.com)
- Pension options for the self-employed (simplybusiness.co.uk)
- Can GPP providers be a little clearer about commission? (henrytapper.com)
- Search “my pensions”! (henrytapper.com)
- Is your company good to retire from? (henrytapper.com)
- Yes, Defined-Contribution Pensions Have Been a Horrible, Terrible, Dangerous, No-Good Idea (delong.typepad.com)
- How a good pension works (mysanantonio.com)
- Steve Webb’s good week (henrytapper.com)
- Pension Corporation points the way to “ambitious pensions” (henrytapper.com)