I am staring with disbelief at p304 of the Barclays Report and Accounts 2017 which contains this statement.
Of the £4,927m (2016: £1,800m) UKRF benefits paid out (in 2017), £4,151m (2016: £1,029m) related to transfers out of the fund.
The total assets of the Barclays fund at the start of the year were £31,8bn and at the end of the year £30.1bn. Contributions to the scheme were just over £1bn.
So nearly 14% of the fund was transferred in one year, four times the contributions. When you consider that a large proportion of the assets of the scheme relate to pensioners, that suggests that the level of transfers is running at over 20% of transferrable assets.
If the FCA’s sampling is as good as it usually is, that means that over £2bn of this money was subject to questionable advice and might better have stayed where it was.
A repeatable number
At Lloyds Banking Group, I’m told DB transfers ran at just below £3bn. We can only assume transfers at RBS and HSBC weren’t far behind.
KPMG’s estimate of total transfers last year stands at £6bn, a figure we now know was outrun by just 2 of the 7000 schemes not in the PPF.
What’s more, transfers out of Barclays DB scheme were up four times on 2016. This is nothing to do with Pension Freedoms which were just as tantalising in 2015 as 2017. Transfer values would have been higher in 2017 with the discount rate falling from 2.8% to 2.4%. But even so, the exponential growth in transfers out is mysterious.
Why so quiet?
One reason for Barclays keeping so quiet may be that the transfers have been very helpful to scheme funding (now at 109%). The accounts make reference
The improvement in funding position between 30 September 2016 and 30 September 2017 was largely due to payment of deficit contributions, higher than assumed asset returns, higher Government bond yields, and transfers out of the scheme.
Neither the trustees or the Pensions Regulator are going to mind too much. The scheme is 109% solvent, even if that solvency was achieved by losing £2bn_ of “liabilities” , through questionable advice to an unknown destination
Indeed, as the transfers are calculated on a best estimate basis and the liabilities are accounted for by the Bank at mark to market, the balance sheet will have seen a marked improvement from all these people leaving the scheme. Shareholders and market commentators are hardly going to lament the freeing up of the balance sheet. That £2bn of the liabilities have been shed (to unknown sources), is no business of the employer.
Nor are the financial services organisations that received the proceeds of these transfers going to be too concerned. St James Place announced its results this week. In reporting on these statements
In his report, chief executive Andrew Croft stated:
‘In the past year, we have seen increased activity around pension transfers, driven in part by the flexibility afforded around defined contribution schemes following the introduction of pensions freedoms but also due to increased transfer values.
‘Transferring out of defined benefit schemes is not without considerable risk and complexity which requires expert bespoke advice, so we have naturally been relatively cautious in recommending such a course of action, but we expect this to be an area of heightened interest for clients and one which we will continue to manage carefully in the years ahead.’
Note the cautious and restrained tone. Having worked in an SJP type environment, I would be surprised if the thought of £4bn+ pa free money did not excite the passing thought “fill ya boots”.
And finally there are the former members, who now have wealth beyond their wildest dreams. While the average DC pot is still below £40,000, the average DB CETV is over ten times that. Except in the Tai Bach rugby club (for a while), you aren’t going to hear too many former members shouting about the glut of transfers, they’re all too busy counting the noughts in their SIPP accounts.
Indeed , in this topsy-turvy world, everyone’s a winner. As Dave Thompson sums up in the comments on this blog
It’s all about Hyperbolic Discounting or Jam today as Rory Percival explains so eloquently. ” I want my money now so I can live for today, everyone wins, I get my money, HMRC gets their tax quicker, DB schemes reduce liabilities. Fund managers get aum, Adviser firms get funds under management much quicker than encouraging regular savings” George Osborne did us all a favour.
Reasons to be noisy 1-2-3
Many advisers are happy to boast about their caution, but somebody has been busy with Lloyds and Barclays, I hear stories of transfer mayhem in towns as far removed as Dagenham and Halifax, Port Talbot and Redcar.
I see the BSPS Facebook pages and they are filled with the delighted stories of steelworkers who are out, The last recorded number for transfers in Time to Choose was £1.1bn (early Jan), my estimate for the total transfers by the end of March isn’t shy of £3bn (even with the FCA interventions).
The KPMG £6bn number is manageable – but if the number is in reality ten times that, and it could well be, that shows an exodus from DB funds that is deeply worrying.
I think it’s worth making a lot of noise about the Barclays numbers because they are truly frightening. I am not saying that 14% of all DB assets are offski, but if they were, we would be seeing a transfer out of DB plans of well over £100bn.
Stick a pin on the donkey’s tail somewhere between £6bn and £100bn and you are looking at the depletion of defined benefit assets caused by the 2017 transfer frenzy.
That may not be a cause for concern for employers, trustees , SIPP providers and asset managers, but it should worry Government and it should worry those of us wanting to restore confidence in pensions.
It’s time that a proper audit was done on the accounts not just of Barclays, but of all the large DB occupational pensions in the private sector. If we can’t measure the extent of transfers , we can’t work out if we have a problem. The current measure of £6bn is clearly wrong; we need a new number.
Thanks to FT adviser for the re-post
Thanks to Maria Espadinha, of FT adviser for her article on this subject which you can read here. Maria has been a force for good in recent months in helping a wider audience get an understanding of these complicated and difficult issues.