I’m not quite sure why Money Marketing is reporting man of the people Steve Webb as re-phrasing Bachman-Turner Overdrive’s famous phrase, this way
Steve is not a linguistic pedant and can throw a few literary shapes when called upon . Get on down Sir Stevie- get with the beat!
The pilgrim has progressed
Actually this story is not about transfers but about DB schemes, Frank Field’s “great British success story”, that have been put out to pasture by corporate UK to the point where transfer values are the only rights that many people remain interested in.
Steve Webb has been a pension champion for thirty years. Now the pilgrim has progressed, like Saul – he has been blinded by the light!
The Damascene conversion
Webb comments are on the back of a joint report from Royal London and LCP into the transfer market. I’ve focussed before on findings from LCP about the acceleration of transfer quotes and the feedback from IFAs about why people would prefer money in a SIPP or even a bank account to rights from an occupational pension.
But let’s look at this the other way round. Why is it that the lure of what Webb in a previous incarnation denigrated as “sexy-cash“, has become acceptable to him, to Royal London and to hundreds of thousands of occupational pension members?
When Steve Webb stood up in front of the NAPF congregation and railed at Boots for incentivising cash transfers, he was speaking to the converted. “Congregation” is the right word for the delegates who showed reverend awe for Webb’s oratory.
But within two years, pension freedoms were upon us and shortly after, a Damascene conversion had overtaken Sir Steve and cash was king. A year later and Steve was booted out of parliament (for no fault of his own) and into the tender clutches of Phil Loney- Royal London’s CEO.
From Church to Casino, the pilgrim progressed the path to perdition.
Perdition at least for support of the principal of an income for life. I sat adjacent to a Royal London rep at a recent FCA workshop where we considered the future of retirement income. Like every other person in the room (but me), he showed no appetite for the risk-sharing that has characterised private pension provision for the past 70 years.
Instead, he participated, as did we all, in discussions on defaults, pathways, guidance and advice through the minefield of individual decumulation. The paradigm in which the FCA Retirement Income Study is being carried out, has nothing to do with pensions and everything to do with sexy-cash
Wallowing in sexy-cash
At one stage in his article in Money Marketing, Webb actually gloats at the tsunami of money coming the way of financial advisers (and Royal London).
Suppose the typical deferred pension is worth a relatively modest £5,000 per year and that schemes offer a multiple of 30 times the annual pension as a lump sum.
Multiplying £5,000 times 30 for five million people suggests total potential transfer values for deferred members could approach three quarters of a trillion pounds.
But for Steve Webb, there is now only one villain in this piece. It is not the wicked ETV incentiviser, but the occupational pension scheme trustees, trying to follow Webb’s instructions and keep sexy-cash at bay!
A recent survey by LCP found….only around 30 per cent of schemes routinely provided transfer values as part of retirement communications. So at the point when members are most engaged in looking at their retirement options, the majority of schemes are still not giving them basic information about the value of the rights they already hold.
Time to restore confidence in pensions
Let’s be clear, occupational pension schemes were not set up to provide CETVs, the right to a cash equivalent transfer value was created for those few people who had special circumstances that made “cashing-out” a valuable option.
The mass market migration to SIPPs – envisaged in Steve Webb’s article is not the sign of a “vibrant market” but a vision of utter chaos. As providers freely admitted to the FCA, while “wealth management” is vibrant, it is not geared for managing pensions for those with a £150,000 transfer value (see above). People who jump out of occupational pensions will have short term solvency of which they may never have dreamed – sexy-cash indeed.
But the “relatively modest” £5,000 they have forsaken is an inflation protected right to an income for life which will become increasingly valuable to pensioners whose capacity for loss and ability to manage complex financial matters, diminished with time.
The risks of the flight to cash are simply not under consideration, instead Webb finished his article
the scale of these (DB) entitlements suggests there will be enough people for whom transfers are worth serious consideration to make sure this market remains vibrant for some time to come.
The real problem with Webb’s oratory (putting aside the awful headline) is that it is inciting ordinary people to take rash decisions based on incomplete information, fear and the herd instincts that he so decried only five years ago!
What is needed is a counter to this. What we need is someone to stand up for the value of a wage for life. I am delighted every time I see another CWU tweet advertising more postal workers saying “yes” to a proper pension and “no” to a cash balance.
— The CWU (@CWUnews) September 11, 2017
I hope Steve Webb has time to tune in to this tonight
— The CWU (@CWUnews) September 12, 2017
Supping with the devil?
LCP are supping with the devil and they know it. They should be wary of seductive sexy-cash and wary of Steve Webb’s oratory if they too are not to be dragged into the slough of despond.
We need pension champions not drawdown chumps. I fear that Steve is becoming a drawdown fantasist and that he is legitimising the wholesale dismantling of private sector pensions in favour of an uncertain and unformed future.
There is no vibrant market for most of those taking their CETVs. The FCA know this and Steve knows this too. The exercise of freedoms, to use another biblical parable, is akin to the eating of the forbidden fruit.