Have pension freedoms really lost us £4bn?

The Times reports in various articles that pension scams have cost us £4bn.

Getting to the £4bn figure means starting with what we already know. There is a whole lot of money loose in our pension system which was previously destined to pay defined benefit pension schemes.

Whatever the reason for this explosion of transfer (and I think it’s got as much to do with quantitative easing and contingent charging as pension freedoms), the fact is that this money is now “at risk”.

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The Times assumes that it’s the pension transfers that triggering most of the problemsScreenshot 2019-07-21 at 07.12.42

and XPS’ evidence for this is their own data

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Apart from some inconsistencies with the data (no fees too high in 2018), this looks like some really interesting work from one of Britain’s most respected actuarial consultancies. If these are the red flags being thrown up by XPS administration teams then the FCA’s scams prevention teams should be on the case.

The Times own investigators have come up with some interesting findings of their own.

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There is no doubt that scamming is happening and it is clearly linked to pension transfers as new money floods into the pension coffers of people who are neither wealthy or used to managing wealth.

But to suppose that this £4bn of  money is being lost to us because of the pension freedoms is a stretch too far.

Pension Transfers are not being sold as a means to liberate pensions using pension freedoms, the evidence is quite the opposite, people are being frightened out of DB schemes and incentivised by ridiculously high transfer values. I am with Alastair McQueen

And to Alastair’s point – Andrew Young asks the all important question – where has all the money gone?


Where’s the money gone?

The real scandal is not the pension freedoms but the wilful destruction of the pensions infrastructure we have build these past 40 years.

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The spike in transfers from 2016-18 coincided with the rise of contingent charging which allowed IFAs to fill their boots with transfer cases, many of which should not have happened. The bumper figures reported in the last three years by insurance companies used by IFAs and by the SIPP platforms on which IFA DFMs sit tell us where the money is.

This money is not all lost, some may have been invested into silly things but most is sitting in funds (including WEI) managed by the wealth management industry.

I do not think that this money is there because of the pensions industry, I think it is there because the financial services have seen a window of opportunity and have jumped right  through it.

 

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
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