But this intervention has to be accompanied by positive action from the private sector. People have to have definitive courses of action presented to them which are better than what the scammers propose.
Easy to preach , hard to heal
Just preaching isn’t enough. The hard truth is that people get scammed because they don’t know what to do with their pensions – especially at the most vulnerable time, when they approach retirement and have to pay attention to what they’ve saved.
In the BBC report, Tom Selby of AJ Bell rightly recognises that
“Since April 2015, when the pension freedoms were introduced, fraud activity has increasingly and unsurprisingly targeted over 55s, often luring people to part with their retirement pot by promising huge returns over a short period of time,”
94% of us don’t take advice at retirement, typically those that don’t – take the default option which is currently to do nothing. But there comes a point when doing nothing is not enough – typically when the need to replace income that’s falling away from the wage packet, needs to be replaced from “savings”.
Time was that people defaulted into an annuity, which worked well when you got a £1 of pension for £10 of savings, but now you’re lucky to convert at 1;25 and – as everyone knows – nobody will ever have to buy an annuity again.
What people now have is a bewildering range of drawdown options. You may be able to draw down from your personal pension but you won’t from your company pension. NEST won’t offer you drawdown, People’s Pension will offer you drawdown by transferring you to a SIPP with LV, LGIM has created a product they are marketing through Smart (and maybe their own personal pension) and so it goes on.
On the financial comparison sites – Go Compare, Compare the Market and Money Super Market, there is nothing.
Is it any wonder that people fall into the hands of scammers who present a clear and definitive course of action?
It is easy to preach about not falling prey to scammers , but unless people are presented with simple instructions on what to do instead, people will remain confused. 94% of people do not take advice, of the 6% that do – a proportion get scammed. These are not statistics that the Government should be proud of , four and a half years after the announcement of pension freedoms.
Collectives remain best
One of the great positives of auto-enrolment is that we are all in it together. Even if you are in a group personal pension, that your employer collects your and your colleague’s contributions from your pay and invests in a common investment fund (the default) means that we are all in it together. Even if you are in a small company or one man band, you can be in a multi-employer scheme (like NEST) where everyone gets the same thing and decisions are taken for you.
But collectives bust up when you get to retirement and you currently find yourself on your own. If you’ve left employment, there is literally no-one on hand to tell you what to do. You have to go out hunting for advice from your provider (little chance) from Pensions Wise (no chance) or from a financial adviser (some chance). Most financial advisers haven’t got a business plan to help small savers. A few can do so (I was speaking with Corinthium, about this yesterday), but only with the help of an employer.
The harsh truth is that if someone wants to help you with your savings – and your pot is less than £50k, there is a very high chance that that person will be a scammer.
Collectives are best, but they (nowadays) don’t help you for ever.
Keeping collective pension schemes open
I have spoken about this before and will renew the conversation again. If companies offering their own trust based workplace pensions and if organisations offering multi-employer master trusts, want to keep their schemes open for members, they should be able to do so.
Many master trusts already offer ways to help members spend their money in an orderly way. BlueSky, Salvus and TPT (the Pensions Trust) all offer Retirement Bridge which offers a managed drawdown using target date funds till a later life annuity ecomes suitable). I’m a fan of these kind of default investment strategies. They give people direction and offer people a partial solution to that “nastiest hardest problem” of creating a “wage for life” for yourself.
One occupational scheme, Royal Mail, is looking to go further and move from an individual DC solution to collective DC, taking away the need for members to decide on when to buy annuity by offering a pension from within the scheme.
Keeping collective schemes open, seems to me the best way to help ordinary people avoid being scammed. If instead of being bamboozled into some sexy SIPP which ends up losing you money, you could tip your savings into a collective scheme which paid you a pension.
If such a scheme was regulated , transparent and did what it said on the packet, then the need for the kind of individualised solution that nurtures scammers would diminish.
Of course you wouldn’t get rid of the scammers, but you’d make life a lot harder for them.
Regular saving = regular spending.
There will always be a proportion of the population who want to self-invest, want a financial adviser and want to take longevity risks on- because they see benefits in freedom.
But for majority of British people, this is not the case, they want a simple collective solution which is as pain-free as auto-enrolment.
We should be making the spending of our money as easy as the saving of it, regular saving = regular spending.
That means doing things together, creating economies of scale, pooling mortality risk and employing high quality collective governance through properly working trust structures.
This may sound incredibly boring and old fashioned, but we need to go back to the system that worked , a system that pays us a wage in retirement that lasts as long as we do.
That’s how we stop the scammers!