Why we will have to wait for our freedom.

target pensions

A prospect of market failure

The sentence may have been over-turned but the prisoner is not free. At best he can wander the prison yard but the prison gates remain locked and even when they open , the pension will struggle to reintegrate with everyday finance.

Such is the Pension Plowman’s short-term forecast; a forecast of market failure like the early days following the last pension revolution, the introduction of the personal pension in 1987.


Innovation in all the wrong places

Yes we have innovation, but it’s in all the wrong places. Channel 4’s Dispatches, aired last night painted a picture where imaginative scams sold to  an unwary public, scams as diverse as the freehold of parking lots in Dubai and the rental of storage in London. These are tangible assets which everyday people can understand, assets, like time-share that have a high initial attraction but a short shelf life.

I once met an Egyptian who tried to sell me farming land – ideal for the growth of water melons in Abu Simbel. The melons would have been very wet, the land was 300m under Lake Aswam and had not been cultivated for decades.



No sign of investment in the right places

We are entering a period of mass empowerment, made possible by the internet. If your radiator goes wrong, go to YouTube. Everything from window boxes to Cash ISAs can be purchased quicker and cheaper on the internet.

But the empowerment to digital guidance has been slow to touch pensions. Moving a the pace of an occupational Trustee Board, members of defined benefit pension schemes await annual pension statements dropped through the letter box. DC schemes can be managed online so long as you are prepared to navigate clunky websites past pages of risk warnings, password verifications and overly complicated screens of information. The user experience is a poor third to compliance and data security. With a few honourable exceptions, touchscreen applications do not get a look in.

The vision of an ATM which not only can tell you your pension balance but can provide you with cash for immediate spending seems as far off as ever.

Rather than build pension dashboards that allow people to assess their life expectancy, the chances of their money running out and monitor the progress of investments, the leading pension providers are still in thrall to regulated advisers. The comfort of advised drawdown where risk is transferred to advisers is proving too strong for many insurers. Empowerment is not improving, pension management remains a closed shop.


No sign of new products

Chris Noon of Hymans Robertson, a regular on these pages, has predicted that £6bn of pension money will be walking out of the prison gates in the second quarter of 2015.

Explaining the £6billion figure, Noon split it into three: the usual £10-15billion of retirement money will be taken out faster than before due to the relative unpopularity of annuities; around 5 per cent of the £100billion of available money in pension pots will be withdrawn ahead of retirement; and some people in final salary schemes will transfer out to get their hands on savings early. (Tanya Graham – this is Money)

But the products being developed to receive this money are not right. Put aside the abysmal scams, the master trusts being launched by actuarial consultancies and IFAs are simply not capable of taking the money.

The regulations only allow money to transfer into a master trust if your employer is participating. As mentioned in this blog employers want to signpost but separate. The master trust retains the link with the employer and is not fit for the purpose of freeing the pension

The only current alternative is a personal pension  (or as people insist on calling them, as self-invested personal pension). Most people do not want to self invest, most people want a simple investment strategy which makes sense; they want a trusted investment manager and they want to get on with their lives.

But the cost of operating a personal pension (relative to the cost of a master trust) are proving a further barrier to change. While existing insurers are sitting on their existing book of business and trusting the advisers, the new personal pension providers are nowhere to be seen. We know, we have approached them and they tell us that the costs, in terms of Solvency II reserving, make running personal pensions too risky a prospect.

So the five options presenting themselves all look pretty rum

  1. Take your money out of jail- invest as you like – but pay big tax
  2. Try to take money to a master trust – and see if your employer will help out
  3. Transfer a new personal pension drawdown option (Alliance Bernstein’s retirement bridge being the one option).
  4. Keep your money with your existing pension provider and hope that they offer you something better in time.
  5. If you have the money (and many advisers will be blunt with you if you haven’t) pay the costs of advised drawdown.

The obvious alternative

To break with the past and offer a new future for pensions money, we need a new option as radical as personal pensions were in 1987. I do not see the alternative in the employer sponsored master trust nor in the isolation of a personal pension but in a new pooling vehicle where the structure is governed by the Regulator (FCA/tPR), where investment funds can be managed for the consumer not the manager and where every day people have the rights to their pension property which was the great innovation of the 1987 reforms.

Whether we call these new structures CDC or ROFs or something new, they need to be made available within the next twelve months. Critically, the reserving costs of such arrangements must be low, the access to such vehicles must be universal and the outcomes be determined by a consensus of stakeholders including the fund owners – the Regulator- fund managers and the members.

Critically, we must break the dependency on employers and advisers which has dominated the design of DC product in the past 30 years. Employers want nothing to do with the spending and investment decisions of their former employees, advisers should be an option not a necessity.

Will this happen?

It is only the Government than create these new structures. They have created one already (the PPF), NEST could convert to one, though I think it is working well in the accumulation phase and is better creating one. Insurance Companies, Fund Managers, even Advisers, could be managers of these collective arrangements (though most likely it would take partnerships between all three to deliver.

When we get these structures in place, then the fancy member interfaces can flourish. People will be able to control how they take money and have the same access to information as I have with my First Direct Bank Account.

This will only happen with leadership. Sadly, the man who has led us for five years may not lead us beyond April. He has left a legacy within the Pension Schemes Bill which should be enacted this parliamentary term, for the vehicles we need to be put in place.

Let us hope that before April 2020, we will be enjoying the pension freedoms with confidence in our pensions restored.



About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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7 Responses to Why we will have to wait for our freedom.

  1. Gerry Flynn says:


    The introduction of Personal Pensions during the 80s was nothing more than a legalised scam with the blessing of the then Government under the banner of “Its your money you choose what to do with it,FREEDOM”, now where have I heard those same words being uttered recently? The consequence of this freedom, well just look at the cost to those insurance companies who jump on the bandwagon in the form of compensation they had to pay out.

  2. Thank you, Henry, as always for your sound analysis of present and future options.

  3. henry tapper says:

    Whatever your position on the freedoms, I think it’s a dissapointing response from the pensions industry so far (with one or two honourable exceptions!).

    However, when everything has settled down- which I suspect will be in about 12 months time, we may start seeing some products that benefit the consumer. There is a dependency in this- which is that we don’t see the same kind of anarchy as followed 1987.

    I hope that we can do something to stop that happening! – eh Gerry

    Thanks as always Hannah

  4. Gerry Flynn says:


    I have no doubt that there will eventually be a product/ products out there which will suite the small number of people that this new found freedom is beneficial too. The vast majority of retirees who’s pension pots will be around £30k are going to find it difficult to find anything that meets their needs, simply because Insurance companies are not going to find it profitable to create such a product.Perhaps the Government should create a “NEST#2” which would provide a default safe heaven for the small pot holder?

  5. John Moret says:

    Henry – 1.25million people at the last count have SIPPs -and around 0.25million are genuine DIY investors. Ok that’s a relatively small proportion of the total pensions population but not to be dismissed. Much of this discussion – and previous blogs – is about the merits of individualism against collectivism -and I think you know where I sit on this issue -although not in any way dismissive of the risks. I believe we will see new solutions and propositions emerge that will over time address some of the issues you rightly raise. The problem with individual solutions is effective regulation – and for over 25 years since the launch of personal pensions we’ve had inefficient and ineffective regulation of this part of the market. Post April the real risk is that many will plump for individual solutions when clearly that is unsuitable. That’s why it’s imperative we have some sort of cooling off period before cash is released – during which time providers and trustees would be obliged to engage with their “members” along the lines proposed in today’s excellent report from the ILC – “Making the system fit for purpose”. I agree with your comments regarding our pensions minister – but fear that if we don’t get the controls in place he runs the risk of being seen as Norman Fowler take 2 (for those with long memories!).

  6. John Hutton-Attenborough says:

    It will be the lack of qualified advice or availability of this which is likely to be the undoing. Can Citizen Advice/ Pension Advisory Service or even MAS really be able to come close to being capable. The scams will win because they will be unregulated/ transactional/ and built on the high commission model which RDR tried to bury. Greedy operators with no interest in the client and here we go again. Another cycle of rubbish which will ultimately do more damage to the advisor community as the headlines will still blame the financial adviser without description.

    (Like the wallpaper!)

  7. If you want to rely on government to set up a scheme via some Agency or other – dream on as this route does not have a good track record! Failures of any Financial Control by government have been abysmal, just look at Equitable Life, Financial Assistance Scheme (FAS) and PPF non of which are delivering a fair pension or proper compensation due to government malfeasance and neglect of past administrations or any willingness of the present coalition to correct past errors and enforce the ‘Pensions Promise’. Since the Millennium existing pensioners are still ‘prisoners of the system’ hammering on the door for attention and getting ‘side-lined’. Under this type of treatment I would not have much hope for the forthcoming NEST etc.
    Peter D Beattie – Very aggrieved pensioner – still living!

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