How do you choose your pension drawdown provider?

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Between 94% and 75% of us (depending on which official estimate you follow), are not paying for advice. Unadvised drawdown is likely to become more common – unless the mass market advice market revives. Although the banks and insurers are investing again in direct advisers, most people in their fifties and sixties  are staring at important retirement choices with little or no help on what to do.

What is needed is a straightforward way of choosing someone to help you spend your savings. The simplest choice is to go to an annuity provider and give it all your money – you have your income for life and a degree of customisation so that the income doesn’t die with you and some options around inflation. But not many of us are buying annuities, fact rather than advice – more should!

If you’re not buying an annuity and you want your money back, you can of course cash in your pension  if you’re over 55 – it’s a bloody stupid thing to do 99% of the time – at First Actuarial you’d hit 100% on the muppotometre scale if you triggered a shed load of tax by taking all your money at once.

Which leaves us with the opportunity to draw down our savings over time using a drawdown provider.

This brings us back to the start of this article. It is assumed by just about everyone that unadvised drawdown is a bad thing as people cannot be trusted not to screw things up. There’s an interesting article from Plat-forum in Money Marketing suggesting that advisers should be very careful about advising on drawdown in case they screw things up (and their businesses at risk). Frankly, drawdown is a hazardous business and I’m about to show you why!

Well I won’t , the admirable Lang Cat will. Follow this link and you’ll get to the summary of the Lang Cat’s February 2019 White Paper Retirement Income: The Direct Platform Market, which was commissioned by tech provider GBST. You can download the report here, This direct to consumer market is referred to going forward as “D2C”


What the Lang Cat is telling us ordinary consumers

This is the first buyers guide to drawdown I have ever seen. What it does is analyse the decisions that consumers need to take when buying a drawdown product and then test those decisions on various providers who offer products directly to consumers such as you and I.

I won’t spoil the fun by re-publishing all the pages , but here are a couple from the simplified version on Citywire sumary

Question: Does your income planning software allow customers to establish sustainable income levels?

  • AJ Bell YouInvest: No
  • Charles Stanley Direct: No
  • evestor: Yes
  • Fidelity Personal Investing: No
  • Hargreaves Lansdown: Yes
  • Interactive Investor: Yes
  • Nutmeg: No
  • PensionBee: No

Question: Does your income planning software help customers identify the most tax-efficient withdrawal strategies, taking other pension options and wrappers into account?

  • AJ Bell YouInvest: No
  • Charles Stanley Direct: No
  • evestor: Yes
  • Fidelity Personal Investing: No
  • Hargreaves Lansdown: No
  • Interactive Investor: No
  • Nutmeg: No
  • PensionBee: Yes – videos
 

Question: Does your income software planning tool help the customer understand the impact of changing their income? For example, if increasing income is likely to impact regular income sustainability. 

  • AJ Bell YouInvest: Yes – illustration
  • Charles Stanley Direct: No
  • evestor: Yes
  • Fidelity Personal Investing: No
  • Hargreaves Lansdown: Yes
  • Interactive Investor: Yes
  • Nutmeg: No
  • PensionBee: No

There are another 20 or so screens of questions , all of which are pertinent to the buying public – none of which are intuitive and very few of which occurred to me to ask.

What the Lang Cat is doing , is a great public service, I want to give Mark Polson and his team a big hug because I am just such a person as wants to understand this hugely important buying decision myself – before deciding whether to engage a financial adviser to help me.


Shortcomings

1.Necessarily, to keep things short, the questions have to assume a high level of understanding of the subject from the reader.  The article is targeted at the professional adviser, though there are some financially savvy general readers who might find the article helpful. In reality – this is not a publication targeted at the general public.

However it is not far from being “public ready”

 

2.Sometimes , the Lang Cat’s vision for what should be happening runs ahead of the market. For instance

Question: Can specific assets be protected from being automatically sold? 

  • AJ Bell YouInvest: Not applicable
  • Charles Stanley Direct: Not applicable
  • evestor: No
  • Fidelity Personal Investing: No
  • Hargreaves Lansdown: Not applicable
  • Interactive Investor: Under customer control as is an execution only dealing platform
  • Nutmeg: Not disclosed to The Lang Cat
  • PensionBee: No

So why isn’t there more of this stuff about?

The problem the consumer has is that there is no integration between the journalists like the Lang Cat and the products themselves.

What is needed is something as trusted as MoneySupermarket or Go Compare or Compare the Market to not just getting you asking the right questions, but giving you the right answers and a clear pathway to making the right decision (for you).

There isn’t a pension aisle in the MoneySupermarket for all the reasons mentioned in the article.

Consumers are generally not up to making the kind of complex purchasing decisions needed to turn a capital sum into an income for life

They are not prepared to buy an annuity for reasons discussed

They are therefore reaching the point when they want their pension money back and taking wonky decisions out of a lack of information, guidance and advice.

What people are doing is drawing on their tax-free cash and leaving the rest of their savings in the pot – because they are scared of the unknown unknowns of drawdown.

Looking at the questions the Lang Cat is asking and casting my mind back to the Pensions Wise interview I had, I realise that there is nothing in public-service land that can remotely help me to make a sound purchasing decision on how to spend my savings.

Which reinforces my view that we need a proper mass market purchasing service which allows ordinary people to draw on their pensions with confidence.


The need for the pension providers to step up to the plate

We know that the majority of the new pension savers are using three or four master trusts – NEST, Peoples, NOW and Smart.

I have spoken with all four about their plans to help people spend their money. Only Smart have a proper plan (though the others have contingency arrangements).

So most people right now, with pensions with the master trusts – will have to consider moving the money onto the D2C platforms researched by the Lang Cat.

I have my money with L&G who have a rudimentary draw-down service. Like most of the insurers , they are looking into a direct to consumer offering but are frankly scared of both being responsible for things going wrong and stepping on advisers toes.

Of the large single employer DC schemes I’ve talked to, only Thompson Reuters  are currently allowing drawdown from their scheme and from comments from its manager Matthew Webb, they don’t seem too keen on the experience.

If ordinary people are going to have to pay themselves their own pensions, then we need a stronger market than the one we’ve got.

The Lang Cat’s D2C report is brilliant – it has the necessary shortcomings of not being all things to all men, but others can build on this foundation work.

I look forward to blogging a lot more on this very important discussion and will be picking the phone up to Mark Polson and the Lang Cat team later this morning to make sure we work a lot more closely in future.

 

DAshboard ladders

 

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in advice gap, age wage, pensions and tagged , , , . Bookmark the permalink.

3 Responses to How do you choose your pension drawdown provider?

  1. Adrian Boulding says:

    The myth of a sustainable income level is a fallacy that comes from people trying to think in “annuity-speak” while talking about drawdown.

    If you buy an annuity you get a guaranteed income and have no need (and no chance) ever to review that.

    If you buy drawdown then you need regular reviews for life. I suggest at least annually. A financial adviser can do this for those fortunate enough to have one, but for the DIYers they will have to find whatever guidance they can and sort it themselves

    So who can help guide them? Perhaps it’s time for IGC’s and Trustees to step up to the plate and ensure that good guidance services are made available and drawn to customers attention

    Adrian

  2. henry tapper says:

    This is spot on Adrian, we need a simple service that provides support to those drawing down from their workplace pensions to compliment the High Net Worth stuff.

    Otherwise look out for Andy Bell and Romi Samova eating your dinner!

  3. Pingback: The rise and fall of SIPPs | The Vision of the Pension Playpen

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