Better the bitter pill today…

The exchange is between two of the top minds  in pensions , people steeped in their subject – both concerned both for those who use our pension system and for the reputation of the “pensions industry”.

Port talbot

The FSCS numbers only show there is no claims culture (yet)

I hope that we do not see a claims culture emerging from the 200,000 or so transfers carried out in the past two years.

Most of the damage that will arise from bad transfers has yet to happen and will only happen if those who are currently advising on the proceeds of the transfer do their job badly or at a ruinous cost.

There is much more to be gained by putting the money that has been transferred to good work than depleting the limited talent pool left advising through an assault on them and their PI insurers.

I suspect that the claims culture – if it realises, will arrive on the back of one or two successful class actions. The class action among the Port Talbot Steelworkers is against one particular adviser who has already been singled out by the Work and Pensions Committee as an egregious offender. Active Wealth is a bad precedent, it and the various parties that egged Darren Reynolds on, are in what Steve Webb calls “the small tail”.

As I wrote over the weekend, the bulk of transfers happened because people genuinely preferred to have a large capital reservoir than a guaranteed income for life and because the rules make it very easy for advisers to meet customer need by saying yes rather than no to a transfer.

I was struck by this tweet from one of our best advisers – Phil Billingham

Phil’s tweet hints at the darker side of being an honest adviser, no-one wants to pay you for delivering bad news. A combination of a sensible Ombudsman ,a transparent fee agreement and a commitment to advise rather than say what the client wanted to hear has seen things through for Phil – but not without the disruption this case obviously caused his business.FOS

That there is no claims culture, does not mean that we can give the pensions industry a clean bill of health. Advisers like Phil who do not offer transfer advice on a “no- yes – no -fee” basis need all the support they can get. It shouldn’t have to be like that.

Phil’s claim shows that we are in the “first days of the rest of our lives”, the tail from the transfers carried out in the past two years will be very long and problems are more likely to occur in the 2030s and 2040s than in the next decade.

Prevention better than compensation

There are three things that the FCA should be immediately considering (and one that they should start thinking about for the future.

  1. The FCA should turn off the open tap of contingent charging so that more money does not flow out of the system on a “no- yes – no -fee” basis
  2. There should be an immediate moratorium on the cost of advice for those in drawdown with advisers told to justify their ad-valorem fees for “value for money”
  3. The FCA should publish in much greater detail, the research it is doing on the 3000 market participants offering transfer advice.

The fourth thing, which will take longer, is to consider what a default pathway for those who do not have the financial capability or resilience to manage our own drawdown, could look like.

I’ve said on these pages that it looks collective to me and my submission to the CDC consultation makes it clear that the long term future for CDC is not as a substitute for DB (as is happening at Royal Mail) but as a means for people in their fifties and beyond to transfer in failing drawdown strategies in exchange for a wage that lasts as long as the transferor does!

A bitter pill to swallow

I appreciate that none of these measures is going to win me a place in the advisor’s hall of fame. But I think that action now – on a co-operative basis between advisers and regulators is the best way to prevent the nascent compensation culture spreading. It only takes one big class action against one of the big contingent chargers for PPI to be replicated.

Adopting the measures outlined above can head the ambulance chasers off at the pass.

Isolating the egregious cases – those where there clearly was an advisory failure – and dealing with them as “one-offs” will also help. FSCS and FOS are right to fear contagion so getting the bad apples out of the barrel now and cleaning the barrel is better than allowing rot to spread in.

Apologies for the mixed metaphors, but I hope you recognise the importance of not being complacent. I am pretty sure that Steve Webb was not being complacent in his comments  but I’m not sure what the appetite is from the providers, advisers and regulators to take active steps to stop matters getting worse.

The sharp drop in equity markets in the second half of 2018 should be a wake up call to all parties. Most of the transfer money was in the market by then and it won’t be long till the impact of markedly lower pot values feeds into the media.

Though the pill I am suggesting be swallowed is a bitter pill, I think it is better taking positive action today , than hoping nothing will come of the transfers that have been completed.

bitter pill

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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3 Responses to Better the bitter pill today…

  1. Phil Castle says:

    Do you have the FOS case reference for Phil Billingham’s succesffully defended complaint please as it would make interesting reading and perhaps help show that FOS decisions can go the other way too.

  2. henry tapper says:

    No I don’t – and I don’t think that I can publish Phil’s contact details under GDPR – suggest you mail him via his website or send him a linked inmail.

  3. Mark Meldon says:

    One thing that strike me, Henry, is that it appears (from much of the media coverage) that a significant proportion of DB transfers (whether Steelworkers or not) have ended up in obscure SIPP wrappers (don’t ‘shoot the box’) in opaque ‘DFM’ arrangements when, in all likelihood, these individuals would likely be better off in something rather more ‘mainstream’. You can’t go back with a DB transfer, but you can, I hope, increase transparency and reduce costs with a good SIPP/PPP.

    Maybe Royal London, an excellent firm, could step up to the plate with some kind of offer?


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