We owe it to ourselves as Pension Professionals to make sure that we treat our customers fairly. Over the past three years we have seen a move to restore confidence in pensions, the RDR, auto-enrolment and the pension freedoms introduced in the budget have materially improved the quality and quantity of pension saving in the UK.
But there remains dark pools where the light of reform has not shone and the management of much of the money currently being drawn from SIPPs is the darkest of them. It is quite common to find layers of fees being charged to member accounts that reduce the capital reservoir by 4% pa. The maximum GAD limit for a 65 year old is around 5.5%, even taking into account the charges built into GAD numbers, many SIPPS are creaming off in charges well over half the income that can be safely be paid to SIPP holders.
The Labour party is threatening to cap these charges if re-elected. They will be right to do so unless we, the pension professionals that we profess to be, put our house in order. It is no longer enough to sit back and wait, it is time that those firms that advise on SIPPs, those that manage them and the trustees IGCs and pension managers who preside over the DC schemes which carry the retirement aspirations of the majority of working people in this country stood out against bad practice in the individual drawdown market.
Let us take as an example, Simon Walker of the IOD who this week branded the pay deal for Helge Lund, the new head of gas explorer BG Group “excessive and inflammatory”. Here is his reason for joining other lobbyists (including the IMA) in condemning the settlement
“This pay deal would do serious damage to the reputation of British Business six months ahead of a general election and at a time when the reputation of UK plc is suffering”
Why I pick the IOD out is that they are turning on one of their core members criticising not just the quantum of the payment , but that it was made in breach of the company’s remuneration policy, agreed only months earlier.
It is easy for us as shareholders to agree with Walker, after all it is our money that’s at stake. But when it comes to the money of our staff, or former staff, do we not have a wider duty of care?
For the reputation of UK “pension plc” is suffering.
We know that the pension freedoms that will arrive next April will bring with them the risk of ruin. A recent poll of Londoners suggested that over 60% thought that liberating their pension pot and investing in buy to let was “a good idea”. We can wring our hands as much as we choose, but given the choice between an annuity bought at a time of negative real yields, or advised drawdown where over half the income is dissipated in charges, people are choosing to pay the tax and be done with us.
SIPPs sit in the last chance saloon, some are well managed at a proper price – many aren’t. As we approach next April it is critical that we engage our pubic, educate them on the difference of good from bad and empower people to take the right financial decisions. Otherwise we will be back in the cycle of recrimination, reparation before we get to resolution .