I can lose my temper, I am always sorry when I do, but learning why I do, helps me understand my vulnerabilities.
I lost my temper at a TISA “deep-dive” into decumulation. I’d listened to a session from the FCA at which I’d queried whether anyone was very serious about what happened once people started spending their DC pot. I’d listened to a product provider explaining how I could buy a drawdown product and partially unitise it as I went along and I’d heard people congratulating each other about this being at the cutting edge. All of which had mildly annoyed me. Innovation in the disruptive sense, is confined in FCA circles to algorithms that help us buy things in consistent patterns.
Artificial intelligence , machine learning, guided pathways – plop!
Another consumer is ticked on his way!
It wasn’t all this stuff that got me cross, it was Malcolm Small. Malcolm likes to remind me of how he rid himself of anything that smelt like a pension. He was in evangelistic mode at the “deep-dive”, railing at defined benefit schemes and ending with a paean for freedom from pensions that included an instruction to those of us with a pension to think of the victims of Maxwell.
I was the next speaker up, and as Malcolm had rather over-run, I was keen to get my slides up. Fat chance! I messed up the launch of my slide-deck and decided to deliver an unstructured rant – instead (you can see the slides I never showed here)
As I got going , I realised that the only thing I wanted to say – was how angry I was.
- Angry that the FCA still permit conditional pricing of CETV advice
- Angry that this means that most advisers are only getting paid for transfers – not advice.
- Angry that product recommendations are confined to solutions that can pay for advice conditional on purchase.
- Angry that the FCA and others justify this practice on the grounds that it gives those with no cash to pay for transfer advice an opportunity to get out of DB plans – painlessly.
- Most of all – angry that the people sitting listening to me were working for product providers benefiting from the transfer of BSPS funds to private pensions.
My rant ended, Malcolm told me that my passion had changed his position and I apologised to the organisers for my self-indulgence – and crap Power point skills!
What are our CETV property rights
The law says that we everyone in a funded occupational DB pension scheme has a right to a cash equivalent transfer value. But the law says that only people who’s CETV is £30,000 or less can take the money freely. Those who want freedom from pensions (through pension freedom) have to pay for an adviser to opine on whether the CETV is in your best interest. This Malcolm (and others) object to.
Malcolm argues that you should not have to pay to take what is yours and in a sense he is right. But though the CETV is your property right, the money is not yours, it is the trustee’s. It becomes yours when you sign over your rights to a future pensions , against which promise, the money is currently invested. Your rights relate to the future pension and you exchange those rights for cash paid into your private pension, after you have taken advice.
Advice is compulsory and not just for members. Trustees too must take advice on how they invest the money and how much money to demand from sponsors and members to meet the pensions payable. Without advice, the system would quickly break down and member property rights would be put at risk.
And members have to pay for advice to unlock their property, to prevent the pensions being exchanged for something less valuable. Advice should stop foolish re-investment (advisers are responsible for outcomes) and advice should take into account the circumstance of the person taking it.
There is still an assumption that the default decision is not to take the CETV but to take the scheme pension. As Al Cunningham puts it, you need to show you’re special to have your property rights in cash.
Why can’t we learn from the past
Apart from the bullets above, I am angry that we do not learn from the past. The mis-selling of personal pensions came about because advisers and providers encouraged people who were unsuited to managing their affairs through a personal pension to abandon their rights to a defined benefit pension. It was nothing to do with the solvency of the DB pensions, or speculation about likely returns from the market, this was about suitability.
For me , people who won’t pay an advisory fee to decide whether their property should be paid as a pension or cash, are unsuitable to take a CETV. I will give three reasons why the FCA should ban immediately conditional pricing
- Conditional pricing distances buyers from the fee. By setting the fee on the far side of the trade, it is dwarfed by the CETV. Setting the fee as a percentage of the CETV makes this problem worse.
- Charging the fee separately, ensures the impact of the fee is understood and (where it is considered excessive) it is negotiated or avoided
- Charging the fee at outset makes sure it is paid for an opinion on advice and not for the broking and implementation of a product.
On point three, I recommend that in future any fees relating to a product are levied separately from the costs of selection and implementation of the financial product (recommended to manage the CETV). Transfer advice -cross-subsidised by sales of products- cannot be independent; the conflict is obvious.
We have to see transparency in this and I support the first steps of the FCA to ensure that the person who is delivering the advice to transfer to be responsible for the destination of the CETV and its outcome. But until the FCA follows the advice of Rory Percival and others and bans contingent pricing, we will be condemned to the sins of the past.
Can we all be special?
In theory we can all be special, we can all have our special reason for having our pension rights exchanged for cash. We don’t just have to be sick or single, people can transfer because they have special spending requirements in later life that don’t involve the payment of a pension in a specified way.
Defined benefit schemes can include a lot more people as pensioners by catering for special needs and I hope that we will see more flexible pension shaping in future.
But at the heart of my argument to the TISA audience was my contention that most people save for retirement so they can have a wage for life. The people who I have spoken to on and off line who are BSPS members are not asking to be treated as special. The majority who are taking transfers have convinced themselves that their advisers will (after fees) pay them a better wage than either BSPS2 or the PPF.
My anger and my sadness is that for many of them, this is unlikely to be the case.