From Blackfriars to Port Talbot

My favorite John Ralfe article is called “don’t cash in your final salary pension” and it contains this passage.

If you are wealthy enough — to the extent that there is no risk of running out of enough money before you and your spouse die, no matter what — then the pension guarantees are worth little and it may be sensible to cash in.

But most people are not so wealthy and their pension is a large part of their overall retirement wealth, so those guarantees are very valuable.

Despite eye-watering multiples for cashing in, do not think now is a clever time to take the money and invest in equities. The higher expected return of equities versus bonds is just the reward for the risk of holding equities. It is not a guaranteed “free lunch” or a “loyalty bonus” for long-term investors.”

John wrote his article shortly after Merryn Somerset Webb had written “If I had a final salary pension, I’d cash it in” and distinguished FT columnist Martin Woolfe had told us he’d done just that.

How can we reconcile our leading financial paper on the one hand advocating pension liberation and on the other filing report after report on the dangerous consequences?How can Jo Cumbo and Merryn Somerset Webb be colleagues?

Transfer windows

Last Friday was Brexit day, it was also #transferdeadlineday, the last day football clubs can transfer players in the “January window”.

Merryn’s article, written in 2016, argued that the opportunity for what John called “eye-watering multiples for cashing in” could be “the last gift you’ll ever get from the bond bull market”. As it turns out , the bond market continues to give us 40+ times multiples (a £10,000 pa pension often gives a transfer value of £400,000 or more) but the incidence of people transferring is falling fast.

The window for transferring is closing but not because the bond market is running out of steam, but because insurance companies are refusing cover (at economic rates) to financial advisors who want to advise on these transfers.

Insurers see the incidence of claims as too high and this is based on evidence of future claims they will be getting from the FCA and actual claims being upheld through FSCS.

The FT reported on the latest FCA statements on pension transfers and I reminded the FCA that in 2016 they had brought this issues to their public’s notice.

Jo Cumbo was upset by this , thinking I was accusing the FT of hypocrisy.

and again

For the upset, Jo – sorry.

Should the FT be charged with double standards?  OF COURSE NOT

It was not just Merry and Martin who were raising awareness, Ros Altmann did too. Ros’ position was clear and precisely the position that John Ralfe was advocating

If you are wealthy enough — to the extent that there is no risk of running out of enough money before you and your spouse die, no matter what — then the pension guarantees are worth little and it may be sensible to cash in.

Minutes after I had juxtaposed Merryn and Jo’s articles, I was speaking at the Institute and Faculty of Actuary’s Great Risk Transfer Debate to a hall full of actuaries some of whom had taken CETVs themselves.

I made it clear in my closing remarks that it was quite possible to support both Merryn and Jo’s positions for precisely the reasons laid out by John Ralfe.

Could I really accuse Ros Altmann, who has done more than anyone in Britain to publicise the need to protect the financially vulnerable, of deliberately provoking the practices the FT are now stopping?

Ros is quoted in Jo’s article in the FT this week

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Almann’s position is consistent and so is Cumbo’s. What I told the actuaries was that they had every right to take on risk if they could manage that risk. However , where risk is transferred without proper explanation and due regard to the consequences, the risk transfer is BAD.

Horses for courses

I know of steelworkers, (Rich Caddy is an example), who knew the risk they were taking and are explicit in praising their adviser for allowing them the right to their money. The level of financial capability evidenced on the Facebook pages of the steelworkers is increasing and clearly some who took transfers are growing into the task of managing their money.

There are similarly people (like me) , quite capable of managing a CETV who chose not to. I prefer not to worry about the markets but to get paid a regular income and there are many like me.

“Financial Capability” is not the only measurement of suitability. Many successful entrepreneurs are deeply cautious retirement planners because they take their risks elsewhere. They may be brilliant in business but cautious on the home front. This is how I understand Paul Lewis’ decision to keep his retirement funds in cash.

The opportunity cost of not “investing” are enormous, but so is the deep satisfaction of knowing the money will be there, year after year. For me, it is another reason to stay healthy!

Rich Caddy and I are friends, but our behaviours are different. Rich has had a steady job in the steel-works and will have a retirement where he will play the markets, for me , it’s the other way around (without the steel works).


From Blackfriars to Port Talbot

Jo’s offices are a few yards from St Paul’s and a couple of hundred yards from where I’m writing this blog.

Port Talbot is a long way away from the City of London but Jo managed to make the steelworker’s pension decisions real to those in pensions.

Merryn and Jo represent two ends of the spectrum of this debate. Merryn advocates financial freedom for those who can handle it and Jo writes about the impact of dumping risk on those who have no means to handle it.

Society is not equal, we need Merryn and Jo, we need John Ralfe and Ros Altmann too.

Most of all, we need a proper understanding of this great risk transfer that has seen £80 bn flow from collective pensions  to the personal management of individual citizens.

Thankfully , the IFOA are on the case and I hope that the debate they have started will lead to a better understanding of how we can travel from Blackfriars to Port Talbot and back again!

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About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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8 Responses to From Blackfriars to Port Talbot

  1. Ron Godfrey says:

    Why do the punters do it though?

    I’m seeing plenty of ordinary people, where advisers seem to believe they’re “doing the right thing”, apparently willing to follow the pied piper yet know the risks they are taking….

    The advisers are supposed to, and believe themselves they are, putting the punters in a position to make an “informed decision” with information to support their recommendation which is Clear…..Fair…..and Not (in any way) Misleading.

    And the Punter can only get to the alter of financial destruction by passing through the Gates of the Sacred Adviser!

    With new-style TVCs the Punters even see how much “money” they are losing with two simple bars comparing pre- and -post transfer values.

    I can see their folly. I think the advisers can too. Which appears to self-confirm the advisers’ belief in their abilities. But the average people aren’t daft. Yet they rush lemming-like. But why, oh why?

  2. henry tapper says:

    Thanks Ron – theres’s an interesting discussion here about “why?”

  3. henry tapper says:

    What this lottery winner can teach you about your pension
    First published 04 April 2018 • Updated 15 November 2018

    A teenager wins a fortune with her first ever lottery scratch card, and must make a life-changing choice. But anyone saving up a pension pot may face a similarly big decision. What would YOU do? Article by Nick Green.

    If someone offered you a million pounds now, or a thousand pounds a week for the rest of your life, which would you go for? More to the point, which one should you go for? And is there a right answer?

    There is actually a correct response to this question (we’ll get to that in a minute) – but first, let’s look at how Canadian teen Charlie Lagarde faced a similar conundrum. A scratch lottery ticket that she bought on her 18th birthday proved to be a winner, and offered her either a) a million dollars as a lump sum, or b) a thousand dollars every week for the rest of her life. She would receive either prize tax-free. So what did Charlie do?

    Charlie went for the weekly $1,000 for life. Basic arithmetic showed that it would take only 20 years to beat the original $1,000,000 – by which time she’d be still in her prime at 38. If Charlie lived to the average life expectancy for Canada (82) she’d receive a total of $3.3 million. Even though she wouldn’t be able to splurge on big luxuries right away, for her the decision was essentially a no-brainer.

    But the operative words there are ‘for her’. Being so young (as young as any lottery winner can be) was a huge plus. Had she been in her 30s, the decision wouldn’t have been so easy. And if she’d already had big debts, or a need to find a large lump sum in a hurry (say, to buy a home), then she might have faced a dilemma.

    So the right answer to the question turns out to be: ‘It depends’. The best prize to go for depends entirely on your personal circumstances, taking into account factors like your age, life goals, financial situation, state of health and even personality. Now for the next question: why are we talking about this at all?

    This decision is more common than you think
    Unless your lucky stars line up, you’ll never find yourself in Charlie Lagarde’s shoes. Except… in a way, you probably will. Although you may never get a chance to pick a lottery prize, you should (hopefully) have a pension pot of some kind. By the time you retire, this ought to be the largest sum of money you’ve ever had at your disposal… and it’s for you to decide how best to access it.

    Now here’s the interesting part. The questions you’ll have to ask yourself when making that decision are strikingly similar to the questions Charlie Lagarde had to ask herself when choosing her prize. Things like:

    Do I take a large lump sum now?
    Is it better to have a smaller, guaranteed regular amount?
    Should I take some and invest the rest?
    If I invest it, where and how should I do that?
    How long am I likely to live?
    How long would it take for one option to beat another?
    How will my money be taxed?
    What are my spending needs now?
    How will these change in the future?
    What if I die prematurely – can someone inherit my money?
    This list is already getting quite long, yet still only covers the broadest issues you’ll face when accessing your pension pot. And by now it should be clear that there is no one-size-fits-all answer. As with the lottery win, the right decision depends on who you are, what you want and a host of other personal factors.

    The pension prize that’s right for you
    This story shows why it’s so important to take advice when accessing your pension pot. The right answer for your friend or next-door neighbour may not be the right answer for you, as so much depends on your personal circumstances. An independent financial adviser looks at those circumstances in detail, while also helping you to understand things like investment options and tax on your pension income.

    There’s no denying that to some extent the right decision also depends on chance – because no-one really knows how long they will live, or what unexpected events will happen over the next 20 or 30 years. However, good advice will even take that into account. Chance (which advisers refer to as ‘risk’) is factored into all financial planning, enabling you to weigh up your choices properly – rather than making rash decisions or being overly cautious.

    So if you have ever dreamed of being a lottery winner (and who hasn’t?) then remember that your pension pot could be the next best thing. Whether you’re winning a million or simply saving it up, the important thing isn’t the decision you make – it’s how you make it. When you ask an adviser to help you take a really good look at your personal situation, your final choice may surprise you.

    Nick Green is communications manager at Unbiased, the UK’s favourite place to find advice you can trust. He has been writing professionally on finance, business and many other topics for over 15 years.

  4. Robert says:

    As John Ralfe states in his article……..”If you are wealthy enough — to the extent that there is no risk of running out of enough money before you and your spouse die, no matter what — then the pension guarantees are worth little and it may be sensible to cash in.”

    From reading your previous blogs Henry, I would say that you fall into the category described above, but even so, you decided not to transfer out of your Defined Benefit pension.

    As you say……..“There are similarly people (like me), quite capable of managing a CETV who chose not to. I prefer not to worry about the markets but to get paid a regular income and there are many like me.”

    I am one of the ‘many’ who share the same view.

  5. henry tapper says:

    Thanks Robert, the important message is that when people are given an opportunity to choose , they must have help with these choices Witness comment by Nick Smith MP in the FT (on BSPS transfers)

    “The thing I find shocking about pensions is the gap between the amount of money involved — often the single biggest pot of money anyone will have access to in their lifetime — and the lack of support and advice available as people try and work their way through a very complicated, high stakes process”

  6. Robert says:

    That’s the trouble nowadays…….there are too many choices which can make things much more complicated.

    With regards to defined benefit pensions my father and grandfather both worked in Port Talbot Steelworks spanning a period of 50 years or so starting in the 1960’s.

    They didn’t have the option of transferring out of the British Steel Pension Scheme as it was before pension ‘freedoms’ were introduced in 2015.

    They never had to worry about their pension being exposed to the stock markets and it did/is doing exactly what it said on the tin………pay an income until death and 50% of that to their surviving spouse.

    • Eugen says:

      Robert, they actually did have the opportunity. They opportunity was there from 1988.

      They made the choice not to enquire about this. But they did that when real yields were 2% per annum, not -1.5% per annum!

      There is nothing wrong with the decision to remain a member of the BSPS2. But you should not judge all people through your own prism, and through your risk tolerance.

      People who transferred are learning and they are learning fast. I know a few who increased the investment risk twice in the last two years. And it works for them too.

      I always hear that it is safer in DB scheme – the advantage comes from pooling life expectancies. People who transferred have another advantage they take more investment risk, and as a result could get more money our of it, and they could get them when they needed.

      With regards with investment risk, if you think that a DB pension is less riskier because it invests mainly in bonds, you are mistaken. If the equity market crashes and does not recover, the bond market would not do any better. Without companies earning, and without GDP growth, bondholder will not get anything either! Governments would not be able to repay their debts either. The only solution is the nuclear shelter.

      Investing in equities is leas riskier, but more volatile. Do not confound risk with volatility!

      • Robert says:


        I, like many others were not aware that the opportunity to transfer out of a DB Scheme has been available since 1988. In which way did it differ from the ‘Pension Freedoms’ of 2015?

        Most people were contented with the BSPS and it was only when we were given the option of either moving into the BSPS2, PPF or transferring out that enquiries started.

        I fully understand that we all have different circumstances and risk tolerances which can influence our decision on DB pension transfers. From what I have read over the past few years is that for most people, it’s not a good idea to transfer out of a DB Scheme. Those most likely to benefit from transferring out have specific needs e.g. poor health etc.

        You have said that I am mistaken in thinking that a DB pension is less risky because it invests mainly in bonds rather than equities. If this is the case please could you explain the following:

        (a) In the ‘Time To Choose’ booklet the BSPS Trustees said…….“You should think carefully before transferring out. You would be giving up guaranteed future pension income in return for income that might not be guaranteed and could vary depending on how you manage it. Even though transfer values can seem very large, transferring out is unlikely to give you as much total pension income as either the PPF or the new scheme, on a like-for-like basis.”

        (b) Through their work on DB pension transfers, the FCA have found that advice was suitable in fewer than 50% of cases. They have said “This is not acceptable and standards must be improved.” Also, they reiterate that “DB pension schemes give you a guaranteed pension income for life so most people are best advised to keep them. This means that in most cases you are likely to be worse off if you transfer out of a DB scheme.”

        (c) John Ralfe has said……..”A final salary pension provides complex guarantees, including longevity (not running out of money) however long you live and investment performance, as the monthly payout will continue regardless of investment returns.”

        “The value of these guarantees to an individual member may be low if they are wealthy and their chances of running out of enough money are tiny, however long they and their spouse live. But most people are not so wealthy and because their pension is a large part of their overall wealth, these pension guarantees are very valuable.”

        “People should not be fooled into thinking that by taking their cash they are financial geniuses, and by taking their cash and putting it into magic equity beans that it is sure to do well. Despite eye-watering multiples for cashing in, and we have seen people quoted 35 or 40 multiples, nobody, whether they are a member or adviser, should think this is a clever time to take your money and invest in equities.”

        “Those who decide to transfer their DB scheme should not think they are outsmarting the market as well as future interest rates, despite being offered high transfer values.”

        “Do not think that by cashing in your pension now you are making a financial genius play on future interest rates, future inflation rates and your own life expectancy. You are kidding yourself if you think you are.”

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