Do we really own the money in our pension?



I’ve been writing all week about owning things;- houses, cars – all kind of “things”. My friend Derek Benstead wrote to tell me

My son sold his bikes, guitars etc. He sees no need to own more than he can pack in a large suitcase and take with him, so he can live where he likes. Liechtenstein for the last 6 months, Spain for the next 6″.

There’s an old fashioned word for this kind of thing – “emancipation”. It’s the business of freeing yourself – primarily from “things”. I guess it’s been trumped by less lovely words like “outsource” and “de-risk”. Emancipation carries a positive emotional charge that captures that lightness of responsibility that comes with not having care of something.

Which I suppose is why we invest into pension funds. We have the money, but we don’t want the care of it, so we invest in funds and pay fund managers to invest the money according to a set of rules (a mandate).

The manager agrees to do this and will usually give you an expectation of what will happen to your money. I won’t get into the expectations , but let’s call it the value he or she is offering. You agree that a proportion of your money can be taken each year by the manager to cover expenses and profit and (on top of this) you agree that certain costs of managing your money, will simply be born by the fund that you and others are investing in.

You agree to all this on the basis of trust that the manager will do his or her best. You still own rights to the money, but for the duration that it is with the manager, you don’t have rights to enjoy what he’s investing in. You can’t vote at shareholder meetings, you can’t live in the properties he buys, you can’t charge rent for the bridge he’s built. He or she can, you can’t.

That’s fine. You have emancipated yourself and you trust that the people who own the property, manage the company or collect tolls for the bridge will pay the profits on to your fund. The fund manager is your agent, and like any agent, you expect a report from time to time on what’s going on , including accounts of income and expenditure.

Well this is where it gets hard.

If all that was going on was the manager buying bridges, properties and shares in companies – fine. But your manager may have given up actually owning these things and exchanged them for some token of ownership – a derivative of ownership, which theoretically carries the same rights but not the costs of ownership. Effectively he’s outsourced his ownership for a swap, or an option or some such financial construct.

Alternatively, he’s given up on running your money altogether and invested his fund in other people’s funds, paying a small amount of his profit to a third party who he thinks can do the job better than he can.

What makes this more complicated, is that each time the fund manager outsources his job to another, you – the original owner of the money – get a little bit further from that share in the company, that property , that bridge.

And the business of reporting on income and expenditure gets a little bit harder till the reporting stops altogether. All you end up with is a piece of paper, or a number on a screen which tells you the value of your money. You’ve no idea where the money has been invested, how much income it’s generated and how much you’ve had to pay to get to the number on your paper or screen.

Now this goes beyond emancipation.

My friend Derek’s son may not have a guitar or a car or a house, but he has what he’s exchanged that for, the means to travel around Lichtenstein and Spain, the joy of doing what he wants with the means not to phone Derek up for a cash transfer. He knows what he’s paying for things and he knows what e-bay or Gumtree charged him to sell his guitar. He is free, but he is in control.

If you are invested in a fund, you neither have ownership or control, you are simply in the hands of your fund manager, which may or may not be a good thing. So to find out, you hire an adviser.

And the adviser tells you what to do with your funds, whether the managers are offering you value for your money and whether you should stick with what you’ve got or go do something else.

You don’t use an adviser because you like paying advisers money, you do so because you have no control or ownership of your money and you think the adviser can have that control and give you back some ownership.

Sometimes it works like that and the adviser is him or herself, offering “value for money”, but a lot of the time, the advise and the fund manager are such good friends that they might as well be the same person. Goodness gracious, sometimes they are the same people!

Which means that you may, by employing an adviser, simply put another layer of cost and complexity between you and your money.

This problem of ownership is very troubling. It troubles me as an investor, and as an adviser and it troubles the people who regulate me. It is why we have this thing called an asset management market study and why the Competition and Markets Authority are investigating advisers and it’s why we have MIFID II and Priips and why we have IGCS and GAAs and Trustees.

This whole apparatus happens because we choose not to invest money ourselves but to use agents. The problem is not with us, we are trusting the agents to emancipate us. but the agents don’t always do that. Infact – all too often – the agents are creating more problems that they solve.

Tomorrow I’ll be looking again at this issue of ownership and what we can do to take back some control without losing the freedom to get on with our lives.

For now, I have guests, and we are on the river!



About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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2 Responses to Do we really own the money in our pension?

  1. Christopher Lean says:

    This is a big issue outside of the UK, where expats are sold QROPS to “take back control of your pension” (with similar connotations to Brexit), when the result is far less control than before- less stringent trustees, non-UK custodians and non-UK regulators that make Rudy Giuliani look competent.

    If there is then a problem, the aggrieved investors find out that that they are not the investors at all. In fact, they are not even the client of the offshore insurance custodian that holds their money.

  2. Colin Meech says:

    All private property is theft! Have you not read Proudon?

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