What does that do to the buyout market?

— andrew young (@glesgabrighton) August 19, 2019

Adrian is right, Andrew is barking up the wrong tree!

The man from the Pru

The issue here is not “what does this mean for the bulk annuity market, but what does this mean for ordinary consumers for whom the question “who pays my pension” is fundamental.

Imagine that you found that you hadn’t got a state pension but a Capita pension. To most people, this would be a downgrade, even if Capita were no more than the administrator and the financial muscle of the State stood behind each payment. This is pretty well the argument that Judge Snowden used for turning down the Pru/Rothesay deal. Here’s the reporting from the FT 

…the judge on Friday blocked the process, known as a Part VII transfer, arguing that Rothesay did not have the same heritage or diversification as the 171-year-old Prudential. Annuities are pension products that often last for decades.

Mr Justice Snowden said that when buying them, customers might have chosen Prudential because of “its age, its established reputation and the financial support which it would be likely to receive from the accumulated resources of the wider Prudential group”.

Rothesay, he said, was “a relatively new entrant without an established reputation in the business”. He added that, although its capital strength was as strong as that of Prudential at the moment, Rothesay “does not have the same capital management policies or backing of a large group with the resources . . . to support a business that carries its name”.

It’s important that the High Court have ruled against the regulators and independent experts and asserted the right of ordinary pensioners to have their money paid to them for the rest of their lives by the organisation they chose to pay the pension.

There are wider implications

The ruling is important for legacy pensions of all kinds. At present, the “books” of business that comprise of our money, are bought and sold on the capital markets with little thought for the people who will benefit from the various policies.

Similarly, rights in occupational pension schemes can be bought and sold by insurers through buy-outs and  buy-ins. Moves are afoot to shift the ownership of money in occupational pensions from trust to trust as consolidators eye the weak employer market for the sponsorship of our pensions. “Weak employer market” is my euphemism for “employers don’t want to know”, which is pretty well how the Judge saw the attitude of the Prudential.

It is odd, that when so much is spent getting the lifetime interest of consumers in a product, insurers and employers are so keen to jettison the lifelong link that comes with paying someone a pension. As a Zurich pensioner, I get a reminder of Zurich every pay period and a very positive one.

Let’s hope that – as a result of this ruling – people’s reactions to the corporate decisions being taken at buy-out and consolidation, are given more consideration.

When do customers start and stop being strategic?

Why is it that an insurer like the Prudential – regards its customer interface for a product such as Prufund or the M&G funds platform as strategic?

Why is that an annuity book – comprising the customers who chose Prudential in years gone by, ceases to be strategic?

People are important, but it seems that the lifetime promise made by an insurer to treat them as such, is dependent not on the promise made but by the strategic value of that promise and that’s what Judge Snowden has said is wrong.

Advisers who urge consolidation onto the whizzy platforms can sometimes neglect the importance of the strategic value clients place on familiarity, financial strength and permanence.

And these values are particularly important when clients want the security of a wage for life annuity. If we see our clients as strategically important to our businesses, we should be listening to what is strategically important to them – not to us.

How does the ruling fall?

Most of the Prudential annuity holders will never know about the judgement, they will continue to get money arriving in their bank account from the Pru, and get Pru communications about their annuities. As annuitants get older, they get less financially capable to deal with change- we know this through a number of studies. The continuity of payments is a good thing for older people.

But what is better is that the judgement calls into question the Prudential’s own values towards their customers and insists that it is subjective value that underpins people’s confidence in the Pru.

..its age, its established reputation and the financial support which it would be likely to receive from the accumulated resources of the wider Prudential group”.

This is absolutely right. Older people may not have the financial capability they may once have, but they have an awareness of security that is based on familiarity (among other things).

Rothesay is not a familiar name, Rothesay does not say “prudence”, Rothesay is an unknown quantity that annuitants need no longer to worry about.

No doubt many will worry that people are in Prudential annuities for the wrong reasons (they did not shop around) but that is not the point, the right reason for most people about the Prudential , is that they see the Pru as a lifelong financial servant (the provider of a financial service that lasts as long as they do.

The ruling falls well – even if it’s footfall is fainter than the man from the Pru’s.