Let’s rid us of financial carnage at retirement

ripped offMy friend Alan Higham asks an interesting question on http://www.mallowstreet, one that I’ve been pondering myself.

I’m really interested in why pension schemes don’t provide more support. Any views out there on what the biggest barriers to providing more support than basic communication and a signpost to MAS or TPAS or Unbiased?

Well here are a few myths that have been trotted out in the long thread of which Alan’s post forms a part

1. Trustees are apparantly paranoid about the consequences of offering advice, even when “advice” is being provided by a third party. I’m reminded of William Blake’s poem “London” and the lines

In every cry of every Man,
In every Infants cry of fear,
In every voice: in every ban,
The mind-forg’d manacles I hear

Have we really got to the point where trustees are happier to see poor outcomes for the trust’s beneficiaries than risk being criticised for offering solutions? Are these not “mind forg’d manacles”?

2. There isn’t enough advisory capacity among advisers.

I will leave it to Alan to refute this.. here he goes

That lie has been spouted as fact so many times that it has become widely accepted. When asked for evidence to support it, people go very quiet or the smart Alec’s say “that’s like proving there’s no God”.

Based on our business models if those who retire without expert support were to receive it instead then around 800 extra staff would be needed. The idea that 800 people from a total population of advisers of 25000 couldn’t be found is ludicrous.

3. Advice is expensive;

Many trustees bulk at a typical advisory fee of £3-500; however the average retail commission paid is over £600 and this can fund advice when members are referred regularly by the pension scheme. If you leave members to find a broker themselves then they will often pay this commission and receive no advice.

The trustee’s “mind for’d manacles” in operation again, or is this pure laziness?

4. Annuities are safe; everything else is risky

Ros Altmann’s paper on annuities that prompted the Mail headline (below) was an attempt to put balance to the choice of retirement income product. Far too many members are never given the slightest sight of anything other than an annuity. The risk with annuities is that you end up buying the wrong product and get a lifetime income up to 30% lower than it could have been, miss out on options to leave your spouse your pension and opt-out of important capital guarantees.

Annuities purchased without advice are as risky as a house purchased without a survey. Ironically, trustees still talk of the risk of providing advice about annuities!
Dail Mail Annuity

5. IFAs aren’t interested in members with small pots

It is true that some annuity brokers (who are earning their fees from commissions generated from the size of the pots) are reluctant to deal with small pots.

But when we have a regular supply of clients running into the several thousands a year then we can manage small pot cases. Genuine small pots have limited options and this is where we need better investment related solutions which combine low costs and low investment volatility using a collective approach to investment management.

But, we can’t allow ouselves to focus on policies for just small pots. We won’t have small pots forever. As DB accrual ceases and DC becomes the norm, pot sizes will grow. Indeed most people have more than one pot, somewhere between 2 and 3. Think about it, you need £100,000 for £3,000 of index linked pension and that on top of £7,000 single tier pension gives a basic income of £10,000 which is the minimum one person needs for a basic standard of living.

There may be other reasons being touted about why trustees (and indeed employers) won’t offer access to advisers at retirement. I don’t buy any of them. Nor does Alan, nor does Ros. Gregg McClymont has suggested that a future Labour Government would insist on employers making this available but why should we wait for legistlation?

The opportunity exists for all employers to adopt “at retirement”policies for all staff. We don’t have to wait for crusty trustees to deliberate about these things in NAP/PMI and mallowstreet forums and seminars. The issues facing those retiring today are immediate and far too important to be left to the pensions congregation.

My own view, stated regularly on here (try this for instance)is that most occupational DC trust boards do no good and by doing nothing, do a lot of bad. Their pseudo-governance is worse than no governance as it lets employers off the hook and gives workers a false sense of security.

We do not need most occupational DC schemes. If employers want to continue to operate them in the context of the new breed of mastertrusts and beefed-up GPPs, they will need to show that they have trustees who take their duties seriously. I would suggest that any occupational trustee board- DB or DC that does not give members access to at retirement advice has to be considered derelict in its duty.

What’s needed instead is a few more Alan Highams, Ros Altmanns and Kevin Wesbrooms! We need them in the Daily Mail, on moneysavingexpert and in the earhole of Steve Webb so that it becomes a minimum standard for employers offering workplace pensions that at retirement options- especially at retirement advice, are offered to all staff thinking of leaving or partially leaving the workplace, to put their feet up.

I’ll leave you with some truly awful statistics published in FT Adviser

Specialist insurer Partnership found that 76 per cent of people approaching retirement believed that staying with their current pension provider would “make no difference” to the amount their annuity pays. According to Partnership’s figures, a mere 50 per cent of respondents to the survey of people aged between 45 and 65 realised that retiring later would result in higher annuity income. Eight per cent even believed that retiring later would mean you receive less from your pension pot.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in advice gap, annuity, auto-enrolment, customer service, dc pensions, de-risking, defined aspiration, pensions, Popcorn Pensions and tagged , , , , , , , , , , , . Bookmark the permalink.

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