How competitive is our private pension system?

 

do ya feel lucky?

Laura Perks- Art of Pensions

 

We are three months away from the launch of the new pension freedoms and not much is happening.

There ain’t nothing shaking but the leaves on the trees!

leaves

NEST has issued a lengthy consultation on what it should do. Frankly NEST is least able to offer pension freedoms as so few of the few 55yr old + members of NEST have serious money in the scheme (there’s only so much you can do with a contribution cap and a transfer ban).

OCCUPATIONAL DC SCHEMES have come out as one (JP Morgan Staff scheme reported to be the exception) in stating they will not be operating Pension Freedoms from their own schemes

OTHER MASTERTRUSTS , including the vertically integrated versions offered by everyone from large consultancies to IFA networks, are promoting themselves as receptacles for bulk and individual transfers (despite their not being able to receive money from anyone but employees of participating employers.

Progressive INSURANCE COMPANIES are putting  in place the basic apparatus to drawdown but from what we’ve seen , this is a long way from the pension bank accounts that have been promised, will provide only the most rudimentary of pension dashboards and in many cases will offer little more than a cash out facility under Flexi-Drawdown.


 

Not pessimistic- realistic

I am not being pessimistic, I am being realistic. The £6bn of money that Hymans Robertson estimate will be seeking freedom in the second quarter of this year will not meet much functionality to encourage it to stay within the pension system.

Cynics might suggest that this suits THE TREASURY very well, as they will be in for a tax bonanza if this money hits UK bank accounts, special one off payments will be treated as regular payments so short term revenues will be further inflated until the rebates can be claimed.

The result of all this is likely to be considerable disappointment among some sections of the population and a regular stream of Dispatches, Panoramas and articles throughout the press blaming, advisers, Government, mastertrusts, insurers and anyone else who has not hunkered down as the “fast bullets fly”.


I see disappointment and recriminations as inevitable. There is not time to get the sell side of the equation in place. Meanwhile the buy side- those of us in our fifties and sixties (as well as those who can still exercise freedoms who are in later years) – have to hope, Micawber like- that something better comes along.

I see two friendly monsters coming over the hill!

monster

I hope…

1. That we see the rise of new players in this market, as disruptive as First Direct and Metro Bank have been in the banking market

2. That we see the rise of a new default solution for the reportedly 68% of people who want their pension paid like an annuity- only with property rights and at a better rate.

One may not happen without another. I don’t see Mastertrusts as the great hope that many do, not least because they cannot aggregate money for people who aren’t in one. I don’t see personal pensions as the universal solution either, so long as we have a Regulatory regime that pertains today, the costs of managing personal pensions will be high and the impetus for personal pensions to revamp into the kind of structures that ordinary people can refer to as Pension Bank Accounts, is not there.

I may be wrong about this and we may see the CEOs of L&G, Standard Life, Zurich,Fidelity,Royal London,Black Rock ,Scottish Widows,Friends/Aviva and Aegon spending large amounts to help people spend their pots as they like.

Some of the old faithfuls such as Axa, Prudential and Allied Dunbar, who still hang on to a great amount of our pension wealth, may dust themselves down and become competitive again,

But I think it’s going to take a boot up the backside for this to happen.

 

For now- it’s wait and see!

For the moment, we’ll just have to wait. I have spent a lot of the last six months trying to get a superb offering that would provide people with a real alternative to “spending it all at once” , but so far it has been without success. The power to do nothing, to sit on what you have rather than create something golden, has been too strong.

There has never been such a good time for a new player in the market, there has never been so much loose money, nor such popular anticipation , nor such opportunity from Government.

I remain optimistic that in the longer term, people will get more freedoms and better pensions. But in the short term, I am braced for some real anger over the summer when they see just how little has been done to meet the new demand

 

About henry tapper

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