This blog is mainly written for deferred members of the British Steel Pension Scheme, but many other people may find it interesting. There’s no doubt that what is going on in Tata-land, will go on with other employers who feel they can no longer fully-sponsor their defined benefit promises.
This blog is about transfer activity and starts with a statement taken from the BSPS Time to Choose website .
In clear language, the British Steel Pension Scheme lays out to members the state of play in September. Since then, many more requests for transfer value quotations have been received. Best guesses are that of the 42,000 or so eligible for a transfer, most are considering their options. The sample poll which has appeared on the BSPS website, is probably skewed by members who are particularly exercised.
Many members will either do nothing (and see their pensions paid by the PPF) or take a decision to join the Regulatory Apportionment Arrangement (RAA) – known as BSPS2.
There are many factors that may influence the split between these three decisions.
One is trust;
should BSPS2 be trusted to pay pensions over many years? The trustees have confirmed that they intend BSPS to start with a £2bn buffer – that’s a lot of solvency. The less people who enter BSPS2 , the higher that solvency per head. Ironically, for those who are prepared to have a scheme pension paid (on worse terms than the current BSPS), every transfer increases the security of future benefits. I should point out that the Pension Protection Fund will still cover those in BSPS2.
I cannot say this often enough, the Trustees of BSPS have shown good faith towards their members as has the management of the Scheme. While these choices are tough, they are not of the Trustees’ making – nor is the Scheme managing these choices badly. In many ways, the information appearing on the Time to Choose website, is exemplary. Members can draw their own inclusion with regards “trust” but I am saying, as an independent observer, that I have see no reason to distrust what is being said by BSPS
Another is fear;
closely aligned to “trust”, “fear” drives decision making , but usually in a perverse way. If trust is lost, fear increases and the fear is that the only certainty is in direct ownership of your pension pot. This is driving some behaviour. I worry that decisions taken out of fear will not be sound. When you transfer, you are simply handing your money to another third party, not all these third parties are reputable – some are sharks. See Angie Brooks’ blog.
Another is certainty;
transfer values are certain, at least for three months after being issued (when they are guaranteed). The certainty of the transfer is not matched by the certainty of outcome from that transfer. Yesterday I published figures produced by the TUC showing how both the size of your pot and what it can buy, change from year to year.
|Retirement year||Accumulated pension fund||Annual Income (£s)(2017 annuity rates)||Annual Income (£s)(Historical annuity rates)|
In truth you have no certainty having your own pot, you have just exchanged one set of problems for another. I met a chap last night who was an expert and claimed to enjoy managing his self invested personal pension. I wonder how many of us are like that. Not many I reckon.
Another is time;
many BSPS members eligible for a transfer think that time is running out for them. This is compounded by the delays people are experiencing getting a quote. People feel they won’t have time to make the decision and that they will indeed be rushed. To be clear, transfer values will be issued till the end of December (closing of “time to choose” and the election to transfer need not be made till the end of March.
In the new year, the rules will change, the BSPS2 basis of transfer calculation will apply, this is unlikely to be as favourable as that currently being used. The message from the Trustees is clear, you had better transfer during “Time to Choose” than after.
My message to all those waiting for transfer quotes is be patient, I would be amazed/shocked/angry if the current clip on transfers is increased or if the discount rate that drives the calculations was altered over the next two months.
Another is shock and awe;
I live in London, I am used to things costing hundreds of thousands of pounds, but when I saw my DB transfer value, I nearly fell over. It was worth more than everything else I owned – and I am well off.
We are told that the average transfer value issued in the first tranche (the 7000 mentioned above) was £285,000. Comments on social media suggests that the older steelworkers are getting quotes which are often above £500,000.
These are eye-watering amounts of money. But as I have written before, they are no more than the earnings of steelworkers in their lifetimes – taking into account inflation. It is a happy fact that many steelworkers could be in receipt of a wage in retirement (a pension) for longer than they worked.
The amounts being offered as CETVs are huge , but so is the amount of money , most of us would like to spend on ourselves and our families over the next 40 years. It is so hard to get your head around this, so easy to take the CETV.
And another is the availability of advice
I am a blogger, I am not a financial adviser and I am not an adviser to Tata, the Scheme or the Trustees. My only intention is to be a useful commentator who can use 35 years experience selling and advising on pensions, to good use.
There is a final factor that will determine people’s behaviour and that is the availability of good advice. This I fear is in short supply. This is not a criticism of financial advisers, it is simply an observation on “supply and demand”.
Financial Advisers are not good at getting organised. There is no list of recognised advisers available from the Trustees (something I will criticise them for) and those good advisers like Al Rush , Darren Cook, Al Cunningham, Eugen Neaqu and Paul Stocks who are familiar with BSPS – have limited capacity.
Just visited a lovely British Steel couple in Scunny. @henryhtapper and @JosephineCumbo – you are always being discussed in their canteen!
— Al Rush (@RAF_IFA) October 30, 2017
It is not as simple as a dating agency for not all advisers are the same – witness this message sent to me this morning
A steelworkers questions for our friends in finance.
I have an option to transfer from the British steel DB scheme to a private pension, as recommended by TPAS I visit more than one FA, here’s my dilemma…
I visit an FA who charges 3% to transfer my £500,000 pension and another who has capped fees at £5,000.
Which one offers the best value for money?
I visit two FA’s with exactly the same transfer pot and circumstances, one recommends a transfer, the other recommends I stay in the British steel pension scheme.
Which one should I trust?
One FA can manage my investment for an annual charge of .75%; the other has a flat annual charge of £800.
Which one offers the best service?
I offer both FA’s a choice of S235 or JR55 grade steels for construction towards a multi storey building.
Which one would you use?
If advisers reading this , feel they have capacity, perhaps they can drop me a line and I may be able to put them in touch with sensible people who moderate the BSPS pages. My e-mail address is email@example.com
After a lot of words I come back to the title of this blog
A decision to take a transfer cannot be reversed and should not be rushed.
If you are reading this and you are one of the 42,000 members of BSPS not drawing your pension, then you can write to me too, and I will give you simple help. You should be speaking to your helpline, calling the TPAS hotline 0300 123 1047, using the Facebook pages set up Stefan and Rich and you should be getting yourself a pension education.
Because if you don’t do this for yourself, nobody can do it for you.
You can’t have it both ways. If you were advising a 55 year old married male in good health expecting £50,000pa in pensions at age 60 from the scheme as an actuary advising this individual what action should they take ahead of any interest rate decision by the BOE
You cannot cop out with this statement
“I am a blogger, I am not a financial adviser and I am not an adviser to Tata, the Scheme or the Trustees. My only intention is to be a useful commentator who can use 35 years experience selling and advising on pensions, to good USE” .
John, I can cop out of telling people what to do with their money. Infact I have to! I can tell them to go to TPAS, get as much info as they can for free and then find a good financial adviser- I do not think anyone can call that a cop out.
In the simple example I gave if you were able to advise what would you suggest once you both have the facts?
Many people that we see ask what should I do at the end of the discovery process. Guidance is useful to a point but to be other than an academic exchange it needs to end in action.
Given the high number of failures of DB and the distortion to investment process identified by your own FAB index how do you defend the “Golden Pension” propaganda.
Pensions freedoms was always a short term synical boost to the “consumer economy” and should have exercised the need for advice from the outset not two years into the legislation.
I am a fan of PensionWise and availed myself of their free 45 minute phone call last year before vesting one of my pots. I was hugely impressed by what guidance can do. In that 45 minutes, the guider calmly set out my options , ensured that I understood them all, and we had a wide ranging chat where they really helped to put the issues into perspective.
They didn’t tell me what to do and I didn’t leave the call feeling that my choice was now obvious, but I did leave the call feeling that I was in control and could either make an informed decision myself or go to an IFA in an engaged manner.
I think it would be really helpful if we had an equivalent guidance service for DB Transfers. Somewhere, like PensionWise, where they are knowledgeable and helpful and have absolutely no bias or even possible perception of bias because they are totally disassociated from the outcome.
The problem with ‘guiders’ is that they are not on the hook for what they tell you. After all, it is only guidance. The FSA used to force financial advisers to issue a book to consumers thinking of tranferring out of Defined Benefit pensions schmes where the UK regulator stated FINAL SALARY PENSIONS ARE GUARANTEED.
Pre the PPF, when final salary schemes failed and members lost 100% of their pensions, the FSA said their compulsory booklet was ‘only guidance’ and not advice! Boom! Goodnight dear consumer!
I do admit though, for smaller pots and certain products like annuities, Money Advice Service et al can be a good educational tool.
Adrian, I am in agreement with you. Indeed it is an extension of TPAS that could be delivered relatively easily. The reality is that calling TPAS is a great help (whether formally using Pension Wise) or informally. And thousands of BSPS members are doing just that! I suspect that the stable will have to empty a bit more till we find a better door!
While I think we would all agree transfer decisions should not be rushed, those that obtain CETVs often leave it a few weeks before taking advice. This then creates a pressure on time as the three month expiry date approaches.
I wonder if trustees, with the packs they send out, could perhaps highlight the urgency of taking advice early to avoid having to make rushed decisions/being pushed into transfer decisions.
It’s a good point and it’s one trustees could take on board. Trustees are frightened about interfering with the process – any intervention – they feel – could leave them exposed. Sadly, the result is as you say. Trustees are responsible for paying pensions, few consider themselves responsible for the member experience when considering a transfer value. I suspect that this will have to change.