This blog predicted last year and this , that within the first three months of the “pension freedom grant”, there would be a Daily Mail front page telling us that we may be (pension) free – but everywhere we are in chains.
I would like to protect the insurers and those running the large mastertrusts but I cannot.
Pension ludditism
In the summer of last year, I was approached by the major Italian pensions administrator Previnet, to help them approach the British pensions market. Previnet run over 3 million pensions for Europeans, mainly Italians, it has adopted new technologies so that people can use their pension pot as a bank account.
But when we tried opening the doors to insurers and mastertrusts, we were laughed at. Some politely gave us a hearing but you could hear the sniggering as we left.
There is zero appetite among the major UK insurers to invest in systems that help people spend their savings. Put simply, it pays insurers and pension funds handsomely to hang on to the money.
So rather than invest in change, the insurers sit on their hands. Rather than look at new solutions, insurers and pension funds smile and laugh behind your back.
The culture from the ABI down is one of cultivated ludditism. While the world around them adopts the new technologies, these companies huddle together and hang on to their policyholder’s money. There is nothing about this that can be described as “treating customers fairly”.
Regulatory paralysis
Meanwhile, the train crash that is the TVAS transfer system is allowed to happen in front of our very eyes. My firm has been working with IFA compliance firm Three Sixty to ease the problem, but where has been the support from the insurers, where has been the engagement from the regulators. This week the FCA made noises that they might consider moving from a simple hurdle rate calculation to a more objectives led approach – wow!
Let me explain what that shift means. It means that people wanting to transfer their pension rights into a pot from which they can draw their money may be allowed to do so without being branded an insistent customer and treated like a financial lunatic.
It means that advisers may be able to advise people on what they want to do , not on what they are allowed to do. People may be free to exercise choice.
But we should not be talking about what might happen now, we should have done something about this last summer, when we had meetings with the FCA to address these issues (and nothing has been done but consult)
Building a lasting mass market solution.
But there is no mention of any new way forward in all this. The tools with which we can spend our pension savings, are still the same – annuity, cash-out or draw-down. Apart from cash-out, where the big winner is the Chancellor, the other options still mean you need to lose control to an insurer or put yourself in the hands of an adviser.
So long as this state of affairs continues, there will be no way for the squeezed middle to avoid heavy unnecessary costs.
Unless the financial services industry does something to create a third way solution- a means to collectively spend savings in an orderly manner, the three options , referred to by the Mail as rip-off, rip-off or rip-off will continue.
What needs to happen now
This is simple and it is hard. There are three things that need to be done immediately
1. The insurers and their IGCs need to be read the riot act, offer freedoms at a reasonable price or prepare for dire consequences. The OFT report is still a smoking gun. We should be embracing organisations like Previnet.
2. The regulators need to congregate advisers, PI insurers and enlightened souls from the occupational pensions industry and hammer out a code of conduct that allows transfers to happen.
3. The Government need to put money into the development of the CDC regulations to allow a third way decumulation solution to emerge prior to the back of 2018 (current schedule).
And if we don’t
The alternative is simple, more articles in the press, more popular dis-satisfaction and a disintegration of whatever confidence has been gathering around UK pensions.
I’m fed up with typing these things, my fingers are beginning to hurt, let’s not be supine idiots , let’s get on the front foot and do something about the criticisms that are rightly being laid at our door