Katie Morley of the de Daily Telegraph has written an important article claiming that the occupational schemes set up to relieve the needy of their pension savings before retirement are now turning their sights on auto-enrolment.
This may or may not be the case, it is not for us to judge criminality, only to point out that the danger to people’s regular savings is as obvious as to their accumulated fund. The only difference is that if you have 30 years + to rob your punters blind, you can do so with stealth charges rather than a smash and grab.
The article rightly points out that one way of doing this is by convincing members to switch funds from a legitimate (capped) default fund to something that has high charges and less transparency. But there really is no need to get member’s to consent to such behaviour. Much better if a fund manager can start out with something legitimate and then change the nature of the default fund to something with a low nominal charge and high charges to net asset value. I wrote about this practice recently (how safe is your workplace pension?).
As the Regulator said to a group of us last week, the elephant in the room is “trust”, and if you put your trust in a corporate trustee who you know nothing about, you have only yourself to blame if the trust is broken. That is why if is better to make investment with assurance that some kind of due diligence is going on. That is why the Master Trust Assurance Framework exists and that is why it is safer to use a master trust that has MAF.
Put the other way round, if you choose, as an accountant, or as a group of accountants, as a payroll bureau, as a financial adviser or as an employer to place contributions into a master trust you haven’t researched, you are taking a big risk. The risk is even more acute if you haven’t used a MAF provider and go off-piste from the Regulator’s Directory.
That is not to say that you are home and dry with a master trust with MAF, I have heard of things going wrong with MAF providers, the point is that even if the master trust has MAF, it still has to be compatible with your payroll and processes (as the Regulator’s new select a pension guide points out).
There are some master trusts that I am told about that I (in my capacity as Editor of the Pension PlayPen, cannot research, not because I haven’t the resources, but because I am told by the master trustees that my due diligence is not welcome.
This is what I call a pension black box.
There are so few advisers offering genuine research across the market that I struggle to point you to people who can give you an in-depth view that is better than the research we receive from First Actuarial, indeed if I knew of better research, I would consider buying it.
But there are an increasing number of firms who are conducting research and making it available to accountants , payroll bureau, advisers +++ and this week I will be working with firms such Financial Sat Nav, deFaqto and F&TRC to get ourselves a seat on tPR’s website.
As I’ve whinged on this blog before, it’s no good sending people to unbiased and vouched for if these IFA organisations are not set up to direct people to advisers who can and want to do your provider due diligence,
The only way is NEST?
In the absence of any opportunity to research the market, TOWIN – the only way is NEST, may be the only opportunity left to those accountancy practices on whom so much of the success of AE (2) relies.
If we had determined at some point in the AE journey, that other providers would be prevented from offering schemes (say from June 2015 when SMEs were piloted) then I could understand a TOWIN policy. But if we determine that there will and should be choice, then we must make a means to make informed choice available.
NEST is a perfectly adequate scheme but it is not right for all employers and it is not right that it gets landed with all the work, not least because that creates a capacity crunch at NEST.
Nationalise Pension Play Pen?
I’ve joked before that the Government should nationalise Pension PlayPen and I will continue to do so! The nation needs us and that’s why I am working hard to get our factory gate price down to a level so that accountants and payroll bureau +++ can use us every time an employer comes to them and ensure that an informed, fully documented choice is made.
But that’s not going to happen, the next best thing is to make sure that people know that if a scheme is not researched by and approved by Pension PlayPen, there is something wrong.
We turn down more than 50% of the providers who approach us to be on our platform because we cannot conduct proper due diligence on the provider. Some of the problems are around getting proper information on investment , some are to do with the sustainability of the provider and some of the problems are that the provider simply doesn’t understand the questions that we ask.
We don’t publish a list of Pension PlayPen rebates , let alone advertise why they have failed, but if we suspect there is something going on- a la Katie Morley’s article, we will pass on our concerns.
Beware black-box solutions
The message is clear, if you don’t have confidence you understand what you are investing in, do not invest. That goes for your staff’s pensions as much as your own money. You do not have a duty to do due-diligence but if you recommend anything you should be advised that you should write down why as this evidence is all you have if you find yourself needing to justify yourself in years to come.
I am not scare-mongering when I write this, simply stating that the standard of decision making you would take when buying your new photo-copier or renting your new unit, could and should be applied to your staff’s pensions. If you believe that your staff are your human resource, why wouldn’t you want to protect them?
Part of our research and due diligence on master trusts has focused on the operation of the trustee board, it’s composition, conflicts and governance ( including investment). A clear area of concern has been when a potential provider doesn’t even know why we are asking the questions?
This is why firms like Pi Consulting are important. I’d add that the term “trustee” does not mean “trusted”. I wouldn’t trust some trustees further than I could throw them.