Would you buy a house like this?
So why do so many people treat their pensions like they were buying a 12 pack of beer?
I wrote three blogs last week about the need for a Code of Good Practice for pension transfers.
The idea came out of work I’m doing for the trustees and employers we work for at First Actuarial. Trustees are required to ensure that advice is taken on transfers 9over £30k in value) and employers , who would love to see the back of their pension liabilities are keen to help the trustees find people to do the job.
So what’s the big issue?
The problems’ that (according to Hargreaves) 8% of all in DB schemes want to look at a transfer to exercise Pension Freedoms. IFAs fear they aren’t skilful and knowledgeable and don’t want to advise. (And I suspect that their insurers won’t let many of them).
So we are in a bind with thousands wanting freedom, Government rules that demand advice (For transfers with a valid over £30k) and very little advice to go round.
The risk is, that without proper advice, many people will become insistent customers and transfer anyway.
Advice protects pensions
(A senior journalist picked up on this last night)
It’s campaigners like Angie Brooks and IFA’s like Peter Pearce (@agedboyracer) that are needed. Responsible people who want to do the right thing by clients
Angie and Peter tweet “fraud” because they are concerned that without action, the money that is transferred will find its way into scams.
If you read the blogs , you can see what a code of practice would need to cover.
- A proper understanding from adviser and client of the client’s financial objectives
- A proper understanding of risk of staying in and of transferring out
- An understanding of the value of the transfer relative to what is being given up.
As Alan Rubenstein said in the Telegraph a couple of Sundays ago, people need to be aware of the risks scheme deficits pose members as part of this process.
They need to understand that the transfer value is based on assumptions that may be quite different from what actually happens (in terms of inflation, market returns and longevity)
But most of all, people need to understand what their retirement is likely to look like in terms of financial needs- and organise their finances around it.
What needs to happen for progress to be made?
Any code would have to come from the bottom up (as happened with the code for ETVs organised by Margaret Snowden).
If it happened, it would need to happen around one of the proper IFA compliance service companies – and through the energy and good sense of someone like Phil Young (@philyoung360) at ThreeSixty Services.
It would need the blessing of the FCA ( Project Innovate) and the active support of trustees and employers and of course it would need to work.
My guess is that @rosaltmann @pensionsmonkey and @alanhigham would need to get behind such an idea. If you are on twitter, you should link to these people, if you’re not, they’re Ros Altmann, Alan Higham and Tom McPhail who between them have done a great deal for the over 55s.
For the code to work it would have to have the support of the Pension Regulator whose job is to protect the assets in occupational pension schemes .
And for a code of practice to work, we would need @TPASnews (TPAS) and @citizensadvice to accept and promote it as part of Pension Wise.
Without it , I see a lot of frustration from the stalemate. With it, we may get some sense in the market but there are risks in any event.
When an adviser has to say “no” and charges a customer who has paid hoping he says “yes” it hurts, a bit like paying for an IVF assessment only to be told you can never have a baby. Or paying for a structural survey only to find you can’t get a mortgage on the property.
Jobs for the boys?
Some will say that a code just promotes unnecessary advisory fees; I think they are wrong. A code of practice should make sure that if you get transfer advice you get value for your money.
You can spend a lifetime pounding away trying to get a baby, you can buy your house and find you can’t resell it. You can take a transfer signed off by a fraudster and lose your pension. Or you can do things properly.
Or getting it right?
There is a walk to pension freedom – it needn’t be that long if we can get advice right.