The quality of savings is constrained



Apologies to the bard – my point is this; the act of saving is laudable but its impact is variable. Saving is not always a good thing and as a spending choice has to compete with debt repayment and speculation for the disposal of your income. The fact’s that those who have speculated in housing and those who have managed debt have tended to proper more than those who trusted the savings industry (especially the life insurance industry).

Scott Gallaher (IFA Leicester) voices a view I have heard from many in pensions, that charges do not impact on the purchasing decision of savers. In a narrow sense he is right.

In my twenties and thirties I saved into a variety of savings plans and it was not until I wanted to consolidate benefits late last year, that I was able to compare the various strategies I’d used. The regular savings plan with Bradford and Bingley had accumulated £8,000 and was trundling along at 0.3% interest. I went down yesterday to Santander to cash it in, mindful that there was a terminal bonus to be paid. The cashier told me there was but he’s have to go to another till to get the cash. The terminal bonus was £1.41 (his till didn’t have any pennies).

Two plans I took out, a Target Life Money Plan and a General Portfolio Retirement Builder have no transfer values. Indeed I was told by a representative of Target Life , when I pressed, that my plan had a negative transfer value, so far had expenses outstripped performance.

Whether through inappropriate investments or high charges, several of my savings vehicles have turned out to be pretty useless. While others haven’t. The trustees of the Gissings occupational DC plan (now Capita) have done a cracking job for me, as have Investment Solutions and the Prudential; the returns on these plans have been in sharp contrast to my Allied Dunbar s226 retirement annuity which has struggled to overcome the modest target of returning more than contributions, the return on my NPI contracting out pension has been equally dismal.

Not one of these plans invested in with-profits and there were no guarantees to protect or hinder the growth of my plan. The only factors that impacted on my investment –  the typical duration of which has been 20 years, has been charges.

Following the advice of my mentors David Blake and Debbie Harrison I have cut and run, transferring my savings into a single vehicle which invests in a way I understand and at a cost that I know. By doing so I have reduced the management charges on my portfolio from £10,000 to £3,000 per annum, though I have had to pay a penalty to get out of some contracts where clever actuaries imposed exit penalties to ensure they got their pound of flesh (why the Merchant of Venice features in this blog is obvious!)

You may ask how it was that I took such crass purchasing decisions as to trust Mr Bradford and Mr Bingley, Allied Dunbar, NPI et al. The only answer I can give is that I fell for the brand. Not clever I know, but it’s what millions of us have done. We have fallen for brand “savings” and bought into concepts such as “capital reservoirs”, “financial security”, “prudence” and “regular savings” as a panacea for the insecurities of day-to-day life.

“It’s alright” I used to say to myself “I’ll be ok in the long run. And I am, but no thanks to the financial institutions mentioned above. It was thanks to good employers setting up well managed schemes that I have what I have now. The fiduciaries of Zurich, Eagle Star, Prudential , Gissings, Capita and Fidelity have protected me from myself.

But no such protection is available to many employees who have bought into poorly performing investments which underperform because of unconstrained charges. I have to add the products have been generally sold by salesmen who have had the blind belief that nobody is going to turn them down because of a high AMC. Sadly they are right- people need protecting from themselves.

We need strong governance. I believe we need Government intervention but it looks like we are not going to get a cap, so we have to move to plan B.

Plan B is to name and shame bad governance. To “out” high charges where the charge is not about value but about “money left on the table” snaffled by the various intermediaries in the financial food chain.

Plan B is about better governance and will happen when insurance companies and banks start treating the customers in their legacy products fairly.

The teller in the Basingstoke branch of Santander told me that the £1.41 final bonus had to be paid out in cash because it was too small to be added to the digital transfer of my funds. We laughed when I explained that I’d bought the plan on the promise that as a mutual, Bradford and Bingley would be sharing its profits with me.

It was a bitter kind of laughter, like me , he had been with the Bradford and Bingley for twenty years.

My experience as a consumer demonstrates the frustration that many people I know for the financial services industry and the people who work in it. This is not an attack on @IFALeicester who I know to be a good guy, it’s an attack on the all-pervasive attitude that so long as people are saving it’s alright.

I’ts not alright, the quality of saving is constrained by the savings institution who put themselves in front of the customer. They  allow high un-transparent charging structures to destroy savings and it is the most financially vulnerable who are most at risk. The man or woman who is not protected by a good employer.

This morning I’ll be visiting a NEST, an organisation set up to ensure that the savings of those auto-enrolled into pensions do not get ripped off. Thankfully we have such an institution for future savings, ironically NEST will not accept transfers from under performing legacy plans.

We still have a long way to go till I can say “the quality of savings is not strained”.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in auto-enrolment, Retirement, Start ups, workplace pensions and tagged , , , , , , , , . Bookmark the permalink.

2 Responses to The quality of savings is constrained

  1. Steve Tiley says:

    Welcome to the real world of pensions and savings as experienced by many millions of people. Many who never actually ever sit down and analyse their vehicles as you have been able to do. This is what Hunter Davies once did and wished he had just bought a buy to let flat all those years ago.

  2. Mike says:

    I can only echo Steve’s comment but we should all try to remember that “the industry does not exist for the benefit of the customer”. My introduction to it was being sold an entirely inappropriate insurance on my doorstep – yes it used to happen that way – and later being allowed to discontinue payments in return for forfeiting all previous premiums (which no doubt had been pocketed by the salesman in sales commission). Add to Henrys comments the manipulation of market prices for the benefit of the “service provider” and you realise that you cannot trust anyone but thats a topic for another day when people “twig” it.

Leave a Reply