The forbidden fruit – choice can be a mixed blessing.

forbidden fruit

I am concerned about the destination of the pensions of thousands of British workers build up over decades.

In a recent blog tried to point out that accepted wisdom that the PPF is a bad destination may not always been the case. In another blog I made a case against glib advice to transfer to investment driven financial products driven by fear (consumer) and greed (adviser).

In this third blog I want to look at ways that ordinary people can make informed choices about their retirement finances without incurring unnecessary advisory fees. This is not my way of saying that advisory fees are unnecessary – I’m saying they should only be incurred when there is a need to incur them. I appreciate this is not what many advisers want to hear, many argue that we need to take advice about whether we need advice, but this leads to the kind of infinite regression that points to madness.

As Jon Spain told us recently, occupational pension schemes were not invented so that we could have a pensions industry; similarly transfer values weren’t introduced to give financial advisers something to do. Property rights, in the form of a cash equivalent to a defined benefit (CETV) are a relatively new invention. They only exist for certain types of scheme, you cannot get a CETV on your state pension or on most Government sponsored d defined benefit rights. They offer a freedom which was broad when CETVs were introduced in 1987 and got broader with the Pension Freedoms that arrived in 2015.

There is however a snag with CETVs – they offer low hanging fruit as in the garden of Eden, that fruit comes with responsibility. Fans of Adam and Eve are humanists who argue that life outside the garden was full of freedom and choice and that Eden was a dull place where no one even noticed they were naked.

The trouble for Adam and Eve came down the line with all kinds of shenanigans between Cain and Able and we all know the rest. Eden, like pension transfers, had a door that only opened one way.

The analogy does not stretch – and I won’t cast the serpent!

Of course “freedom and choice” was not necessary in the garden of Eden and I’ve always wondered about the point of snakes.

I wonder too whether we need property T on private defined benefit pensions. They attract flies like decaying meat.

But ordinary people like the right to take their money back , even if they don’t use it. We see people marvel at the range of investment choices available to them in a DC plan- without ever using them. And we see people entering into drawdown – without ever spending their money. We are delighted by the prospect of choice but frightened to exercise it.

The best thing that advisers can do for most people is to explain to them what their choices are without implying that staying where they are is anything but an acceptable option.

People like to know that they can ask what they like and get an answer, without asking the question.

Most of all people want to know that what they have will do, even if there are alternatives.

Right now we are disturbing people from the security of their prospective pension and offering them nothing but a speculative investment.

This is like the apple from the forbidden tree, it looks great – offers freedom – but ultimately leads to problems.

A good  job would be to point out that mankind has been here before.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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5 Responses to The forbidden fruit – choice can be a mixed blessing.

  1. Con Keating says:

    This has been a really good and in my opinion necessary series of blogs. Part of the problem is that the CETV now has different purpose from that for which it was originally offered.The transfers now are a prelude to cashing out of a DC scheme in “freedoms”, not the preservation and consolidation of DB rights. I suspect that very little would take place without that cashability. It also is about as far as one can get from the historic interpretation of a DB pension scheme – As Goode put it: the member has an interest in the scheme, not its assets.
    The Regulator’s guidance on this is worse than useless – it is compounding the real cost issues of current valuation methods

    • Phil Castle says:

      I agree. One of the reasons I DON’T have DB prension transfer permissions is that I haven’t sat the exam, but more importantly I act as a gate keeper for my clients and can explain the cost of advice related to a transfer BEFORE they decide whether it is appropriate to pay that amount for the advice.
      In the vast majority of cases under about £100k I woudl have thought (and certianly under £30k) the cost of the advice outweighs the benefit of getting the advice in the the first place ( in the consumers opinion) and the consumer coming to that conclusion is useful way of only passing on those who value the advice and are willing to pay fr advice which might be NOT to transfer as has been the case in the vast majority of those I have passed on to AF3 qualified and authorised firms. My locum has G60, but dropped his permissions for the same reason that if I ever DO pass AF3, it is still quite likely I will not apply for permisisons as I think the relationshop manager (me) should be seperate from whoever advises on a the actual DB transfer and the payment for advice should definately NOT be contgent on a transfer taking place.

  2. Gerry Flynn says:

    Did I read somewhere that according to the tPR there have been 68K + transfers this year so far. I wonder how many of those are DB2DB or Occupational DC? Is this just over blown hype by vested interests or is there a potential underlying problem.

  3. henry tapper says:

    Aon reckon that high value transfers have increased 15 fold since Freedoms
    WTW reckon that overall transfers have increased 10 times in the period
    tPR reckon 80,000 transfers completed in 12 months to march.

    Problem or solution depending on what your view is. But it’s certainly not doing much for pensions

  4. Gerry Flynn says:

    Does the tPR know the make up of the 80,000 transfers, are they all taking advantage of the new “freedoms” and therefore could result in a new “PPI” scandal in the future. Do we know what the average TV was? More questions than answers me thinks.

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