Pound cost ravaging

workplace advice

I felt like General Melchett inspecting the trenches.

At the 21st Century Retirement Income Update I met a bunch of advisers who have since 2008 been trying to help clients make sense of the volatility in world markets , understand the relationship they’re supposed to be having (post RDR) and now coming to terms with the loss of commission from their workplace pension portfolio and the revenue streams from annuitisation,

The IFAs I met were resilient and determined to find a way to advise on the new Annuity Framework. But the anecdotes they tell of clients running out of funds to meet the income targets anticipated from drawdown were the most worrying for me.

I had not appreciated till I saw the numbers, just how ravaging the impact of global volatility can be (and yes I’ve seen the Fosters ad and yes we did talk about this over an Indian last night (thanks Will and James).

There weren’t many women, one who made it made a lot of sense – Jan Holt. She talked about the impact of drawing down a monthly income at times of extreme volatility and how the positive impact of “pounds cost ravaging” could turn into the calamity of “pounds cost ravaging when it was income “out” not “in”.

The IFAs I talked to had created a language to explain drawdown to their clients but I sensed they felt they had been let down by the investment products they had used. Neither diversification or rebalancing had been enough to meet the expectations of their clients, many of whom were drawing less than now than in the early days of drawdown fifteen or twenty years ago.

It would be easy for me to point the finger at high product and advisory charges (and this is part of the problem), but the real issue is that the kind of dynamic de-risking strategies that occupational schemes have operated for years , simply haven’t been made available.

It was good to see Tristan Edwards of Axa talking about harnessing Alliance Bernstein to deliver more stability without resorting to the purchase of structured products.”what took them so long?” was the comment from one delegate I heard.

The harsh reality for IFAs is that it is they who are accountable for member outcomes and for the ravaging of income expectations that has happened to many clients.

The investment solutions rest are available in the institutional market and the structures to deal with the squeezed middle are available to create collective schemes. But there is no joined up thinking as to how we can link the proven effectiveness of de-risked collective investments to the problems of Britain’s squeezed middle.

This must surely be the focus of the FCA as they struggle with the delivery of the new Annuity Framework barely 11 months till launch.

There are now only 22,000 surfing appointed representatives (down from 300,000 in 1998). Those that still practice are skilled , effective and battle-scarred. Anyone of them could do a better job talking about the problems of delivering guidance (let alone advice to the half a million retiring next year.

But in as much as I can speak for those at the conference and those who I met in the evening, I will.  The Money Advice Service is loathed- that much everyone is agreed on, annuities are loathed- an 80% fall in sales was what I heard from the annuity brokers in the room, but drawdown is feared. Feared because IFAs know what happens when it goes wrong. Every tax expert I met (and Tony Wickenden spoke in the afternoon) agreed that busting money out of a pension into a deposit account- just for ease of access- was a gift to George but nobody has yet thought of a system where money can stay in the pension and be managed out over time.

Those who have read this blog over time know my views, the answer rests in collective accumulation (target dated pooled funds) and collective decumulation – predictable drawdown as the Friends of CDC have it.

All this will sound cosy and trite to the angry and frustrated IFAs I spoke to, they have no-one to shout out for them in Brighton ,Canary Wharf or Westminster.

In truth, if they knew him- they have Alan Higham and Billy Burrows and Darren Dicks without whom much of the annuity reform wouldn’t have happened. I’m hoping that the Treasury are talking to them but they should also be speaking to the likes of Melvin Wyatt,Robert Brear, Simon Fritton and Barry Lipkin whose cards sit on my desk this morning. These are the guys who will have to do the heavy lifting and they have seen their practices ravaged too often to see reform helping them do their job.

I’ll be thinking of them on Friday. It was a great day, a real learning day for me and I’m grateful to Money Marketing for the opportunity to do my General Melchett bit.

This post was first published at http://www.pensionplaypen.com/top-thinking

About henry tapper

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