There is a lot of loose money in our financial system, destined for our later years. This has not escaped the notice of those who make it their business to manage other people’s money.
The money is “free” for three reasons.
- Pension Freedoms is releasing money from the bondage of the annuity
- Automatic enrolment is feeding money from the wage roll into savings
- The money that was being invested to meet DB promises is not flowing into retirement savings.
Taken together this represents a radical shift from a financial plan for the nation that centres on income , to one that centres on capital. It is no longer right to call a workplace pension a means of deferring income, it is a means of transferring income to a capital reservoir from which we are invited to sluice money as we need it.
The shift in focus from income to capital has left many whose job was income planning , twiddling their thumbs. Without an endgame of a defined benefit pension or an annuity, the actuary is a forlorn figure surveying the reservoir and trying to remember where the river used to flow!
But the actuarial consultant has retained rights to manage other’s money because of the impenetrability of the rules that surround pension taxation and the self-created complexity of actuarial valuations which ensure that nothing is as simple as it may at first seem.
We have still to find a consistent way to reconcile the Guaranteed Minimum Pension, we struggle with a consistent method to value the property rights of those with DB pensions and we are about to open another box of tricks with the formation of a secondary annuity market.
Clearly the Treasury are exasperated. If we cannot even agree on definitions for advice or guidance, how will we rid ourselves of the mess that surrounds PIPs, the LTA, the annual allowance and the multiplicity of tax thresholds that maintains the precarious superstructure keeping the current taxation system working.
The Treasury’s exasperation appears to be directed at the people who have traditionally managed our money, the trustees of our occupational pension schemes and their various advisers – legal -actuarial – accountants and asset managers.
The Pension Freedoms were the first blow to the hegemony, the second is the dismantling of the apparatus supporting the Local Government Pension Scheme and the third will be the wholesale reform of the pension taxation system which is expected in April.
What will be left by the end of this decade will be a very large amount of money, but precious little direction on how and where it flows. I suspect that redirecting the flows will form the second part of the grand plan- though whether this plan is in anyone’s mind, or is simply a natural consequence of there being no current plan, is a moot point.
What is becoming clear is that the controls on those who manage our money are currently lax to non-existent.
The report by the Centre for Policy Studies shows that without firm governance , the costs of asset management can be whatever the asset managers choose them to be
We may well wonder how – at a time of little asset growth and low inflation, asset managers may have managed to double their costs to the taxpayer in managing Local Government Pension funds. While admin costs have fallen 11% over the period, fund management costs have increased 111%!
The answer probably lies in the capacity of fund managers to find new ways to spend their customers money and a revelation that they’ve always been spending much more of it than anyone thought.
If we are to have a capital reservoir, increasing so dramatically in size, we need to be sure that what’s in it is not leaking into the ground as fast as it arrives!
I predict that the ongoing battle to keep other people’s hands off our money is far from over!
The institutional pillaging of the LGPS by asset managers and their cronies is not the only threat to our money. While the RDR and subsequent legislation surrounding the provision of advice to employers setting up workplace pension schemes has greatly improved value for money, there is a constant threat to our money from those who see opportunity to do it damage. This advert appeared on linked in this week
We know only too well, the easy pickings that the scamsters see in liberating us of our retirement money through fraudulent enterprises revolving around the infamous UCIS funds.
It is easy to point the finger at these miscreants but infact they are not the Fagins, at worst they are artful dodgers, the Fagins sit in City offices and legitimise theft by calling it institutional.
Our wealth has never been so vulnerable. We are prey to all manner of bandits who have eyes on our prize. So large are the sums in the national capital reservoir that what appear minute percentages can translate into private fortunes for those who can win the management contracts.
How- you might ask – can we win this battle?
We can win it only through the application of good governance. Governance needs to be applied by people who are on our side and not on the side of those who manage the money. In my experience there is a complicity between those managing our money and those governing it. Michael Johnson brilliantly exposes this complicity in his exploration of the pillaging of public pension funds, it will be through Michael and the few independent commentators like him, that better Governance will begin.
But in the long term, the battle will not be won by thought leaders, or by the journalists that pick up and amplify their ideas, it will be won by the general public refusing to put up with either the Fagins or the Artful Dodgers.
Proper policing through good governance is the way to keep our pockets safe going forward. Without good governance we public do not stand a chance.
This is why the bolstering of governance through the introduction of IGCs and the strengthening of the power of the Chairs of DC Trusts is so important. And it is why we should be supporting them and scrutinising them in equal measure!