Do you fancy a driverless pension ?
Reading Colin Richardson’s excellent Governance Advisory Arrangement (GAA) report on SJP, I realised just how tough it is for anyone who doesn’t work for St James Place to take any sort of decision on an SJP Pension.
Here – for instance – is Richardson’s explanation of the charging structure for the various classes of personal pensions that SJP has created since inception in the late 1980s.
St. James’s Place have revised the charging structure of their workplace pension plans over time, so that there are now 4 series of such plans, Series 1, 2, 3 and 4.
You’d have thought that a personal pension would be the equivalent of a driverless car, but no;-
These differ from other GPP’s in that an individual advice ‘guarantee’ or ‘service’ is integral to the process across all Series
In fact each personal pension – even a workplace personal pension , comes with its own chauffeur. Advice is integral to the purchase, your chauffeur is always available.
This is the fundamental attraction of SJP and why it now has £90bn + under management. You buy advice integrated into the product and value for money must include an assessment of the value of the advice. Conversely, you would expect that if the advice is not available or ignored, the value for money of the product reverts to a straight through look at the costs and charges (money) against performance and service (value) of the personal pension itself.
As Richardson points out, on a like for like basis, with advice taken out of the picture, SJP pensions represent fair to poor value for money (as close as anyone will say to “poor”).
What are your options if you don’t consider the advice you are getting from SJP is “value for money”?
So long as the advice is taken and valued…
If we explore with the GAA what Series 1,2,3 and 4 personal pensions actually look like, we get a fuller explanation.
For St. James’s Place policyholders the varying combinations of annual management charges (‘AMC’), fund management charges, administration fees, bid/offer price spreads and allocation rates lead to policyholders having widely varying charges when expressed as a percentage of invested funds. Therefore, there is a wide variation in value for money experienced by individual policyholders.
The administration fee which is applied to Series 1,2 and 3 plans is material for policyholders with small funds (although nil if the fund value is less than £3,000) but has much less impact for policyholders with larger funds. This fee is not applied to Series 4 plans.
The bid/offer spread in unit prices is relevant for all policyholders still contributing and the impact varies according to current fund values and term to retirement.
AMCs are reduced after 10 years by 0.5% p.a. for policyholders with Series 3 plans who have invested greater than £20,000. Therefore, these policyholders pay lower charges than the Series 3 policyholders in the first 10 years or others with smaller funds.
This of course is by no means a full explanation of the situation, it does not deal with the early redemption penalties on policies within their first five years and doesn’t detail the impact of bid/offer spreads and admin fees which are also designed to recover costs for the insurer from anyone who “wants their money back”.
In practice- deciding to sell the SJP chauffeur driven car and exchange it for a manual or even driverless model, will require the co-operation of the chauffeur, who is unlikely to make it easy for you to sack him/her.
You need more than a dashboard to change your SJP!
Infact, if you decide you no longer want/need the advice, you would normally want to change the pension vehicle to one that is “execution only”. The obvious alternative is Hargreaves Lansdown but you could add Fidelity, Pensions Bee and a number of other non-advised products to the list.
The terms of divorce from your adviser will vary. If you are over 55, you will not be penalised by more than 1% for leaving, but if you are younger than that, St James Place will (contractually) penalise you.
The trouble is that the one piece of advice you are not likely to get from an SJP adviser is whether it is in your interest to say goodbye. SJP work on a “restricted advice” model meaning that the adviser cannot tell you whether you would be better off without him/her. Which is convenient for SJP’s business model – which thrives on client retention, but not much good for consumer choice.
What’s needed is an SJPEXIT model
What’s needed, and as far as I know, has yet to be built, is a modeller that allows people to analyse the cost of staying with SJP against the cost of leaving. Clearly this model would give violently different results for 55 and 56 year olds, but it would be interesting to see what the impact of crystallising future charges would be, in the years leading up to 55. The modeller should be called “the cost of sacking the chauffeur“.
In the first SJP GAA report, Richardson refused to opine on the value for money for SJP policyholders and issued this rather ambiguous statement instead
SJP send a survey to all their clients, and around 80% of responses received from clients with SJP pensions said they viewed SJP to be good or excellent value for money
As we all know, this kind of self-assessment tends to be biased in favour of the provider, when the provider is framing the question. This was not an “independent” survey.
Similarly the feedback the GAA get from policyholders is not direct feedback – it is not independent.
As Richardson points out in his report, SJP reserve the right to filter out any feedback they might consider a complaint.
So SJP governance is anything but “independent”.
Which brings me on to the value of a dashboard – especially if you can’t drive the car.
If SJP were treating their customers fairly, they would offer them a clear modeller that would show them the impact of leaving SJP, relative to staying. The cost of early exit against the cost of remaining (sound familiar?).
Unlike Brexit, SJPEXIT is financially defined, should not require lawyers and should be easy to analyse. But it isn’t, and that’s a shame.
It strikes me that SJP policyholders could do with a cloud-based SJPEXIT calculator. Any clever soul want to build one?
This is what many advisers have been saying for years, but better written. You should sell this article to someone like New Model Adviser as the number of replies/hits would be astronimical and SJP management would go ballistic if it then appeared in the Times for consumers to see.
Thanks Phil, of course consumers are on this site all the time and they can pick up seeds from here and drop them into other publications where they can sprout! This happens all the time and if Will Robins wants to re- publish on NMA – he’s most welcome. If the big dailies want to grab some text and republish, they can do that too – (sh)it happens!
The end much more important than the means! The most important thing is that SJP customers make informed choices on their “wealth”. 80% of them see SJP as excellent so I doubt that SJP are going to be fussed about their being SJ Pexit modellers in cyberspace
The “modeller” you are looking for is a Reduction in Yield” (RIY) calculator specific to the plan and policyholder. A number of independent advisers are equipped to make such calculations – a number of software providers have a generic tool but this should cope with SJP’s various charges since this is not actually that complicated compared with other legacy insurance company PPPs. At my last count Prudential had 37 different series of legacy PPP series.
Thanks Stan
Does this compromise the “treating customers fairly” issue in that there are different charges for different pensions/ services. How on earth does anybody know whether they are getting the best/ right one?
These are all legacy plan issues dating from the pre platform era when insurance companies were very ‘inventive’ with a variety of different charging models for what was known as ‘unit linked’ business. The real lulu was ‘capital units’ which largely hid the fact that your first couple of years contributions on regular premium plans were all absorbed in charges. The actuary who invented this (whilst at Allied Dunbar) was later inducted into the actuarial hall of fame (a very rare privilege) for this ‘ground breaking’ development. At least this was ‘transparent’ (unlike ‘with profits’ in the sense that all the charges were declared even if you couldn’t actually make much sense of their total impact, other than through RIY when that became mandatory circa 1995. That largely failed because customers and more importantly advisers didn’t fully understand (or trust) the numbers calculated by the providers – a bit like new car exhaust emission figures. When calculated independently these are much more useful but only now is software coming into the market to do that. Some IFAs have been using spreadsheets for years to do their own comparisons, particularly on plan transfers or replacement to meet FSA FG12/16 practice guidance.
Lulu is right!
They have advisers!!!