I have been following a series of tweets from Jo Cumbo; they concern an interview with a man who has recently “encashed” his pension with the cash being invested in a drawdown product. He is 57, has worked for British Steel and he is confused.
So why was this ex steel-worker wanting out of his final salary pension?
There is no sense of how he feels towards his former employer but it’s clear he had little regard for the pension he had given up.
Infact – it turns out that the decision he has taken has worked out well so far and his money has doubled (he is on the “right side”)
Here is someone who has lost his livelihood and is looking for certainty. Ironically he has swapped the certainty of his defined benefit for an investment about which he knows nothing. Had this man been invested through the financial crisis , who knows what his predicament might be now. The only certainty would be trauma.
The only certainty from “stressed” markets is trauma
This is great campaigning journalism by our leading pension journalist. The series of tweets asked me to consider what my reaction might be were I in this man’s hoes.
That he had built a six figure sum and subsequently doubled his money suggests he had worked for much of his life in steel. That he had taken financial advice and made a decision based on what was right for his wife and children suggests a responsible man. That he knew nothing about where the money went but had trusted his advisor suggests a respect for the advisor and his profession. I think it fair to conclude that Jo was speaking to a very decent man.
There is nothing in Jo’s account to suppose that his planned inheritance will happen soon, he is living on his tax-free cash and – at 57- has his taxed savings intact. If markets continue to do well he may draw down less than the growth on his fund, he may well be able to provide himself with a replacement wage for life and even leave money for his family when he dies.
But there are a lot of “ifs ” here and his trust is in a mechanism he knows nothing about, he is flying by wire and in a passenger seat.
There are 130,000 people in the British Steel Pension Scheme, most of them are pensioners but well over 40,000 are still to draw their pensions and could well take the option this man took.
The British Steel Pension Scheme is commonly thought of as one – if not the – best run pension scheme in the private sector. Last year it returned 19.1% on its investments and though it runs a small deficit it has some of the lowest per capita operating costs of any funded pension scheme in the land.
As is well known, the Scheme will close soon and its deferred members can choose to migrate to a new British Steel Scheme, transfer away to a personal pension scheme- or- if they do nothing – have their benefits paid by the pension protection fund.
What we can be sure of, is that these choices are not easy, as I have written on this blog before, there are occasions when the PPF may represent the best option though many will choose to keep their money managed by the trustees and their investment team.
I am happy to report that these members are getting the care and consideration they deserve and that both the Scheme and its sponsor are acting in a responsible way to make sure that where decisions are taken , they are taken with blind faith but with deliberation.
The new scheme has secured a considerable cash injection and a stake in the continuing business run by Tata, this is a tremendous improvement on the original position faced by those in the scheme. in particular the pensioners have very much to gain from continued participation in a private rather than a PPF paid pension.
For a very large number of the 130,000 British Steel Pension Scheme members, there is considerable certainty about their pension rights.
Our job’s to restore confidence in pensions
It is incumbent, not just on our journalists, but on all those who know about pensions, to point to the security offered by occupational pension schemes as a source of comfort to those whose jobs and pensions have been “at risk”.
This message is too little heard ; it is the still small voice of calm in the hubbub of “pension freedoms”.
I totally “get” how the gentleman Jo spoke to came to his decision. He did so because he had lost all emotional attachment to his pension scheme having lost his future with British Steel. This man voted with his feet – whether out of frustration and anger, out of fear, or out of trust for his advisor. He certainly did not understand the decision cerebrally.
Our job, and I mean by “our” everyone who can subscribe to my wish to “restore confidence in pensions, is to promote the certainty of a well run pension scheme over the “hit and miss” situation this gentleman now finds himself.
That is not to say that transfers do not have a place, but there is no place for the confusion described so well by Jo. People either need to know what they are doing when managing for themselves of have confidence in those who manage money for them.
This gentleman seems neither to have confidence in what he has or what is lost. I suspect in both cases he should be reassured.