Over the past five years, millions of people have found their money , locked into company pension schemes , under new management.
The trend for company pension schemes to close and transfer people’s savings into multi-employer schemes (known as master trusts) looks set to increase as Government announces new tests for the viability of company schemes which may encourage or even force trustees to “consolidate”.
Even large employers such as Vodafone have decided that the cost of managing their own staff’s money is not worth the kudos and effectively outsourced pension arrangements. It’s understandable that staff who may have felt loyalty to their company of former employer, may not be so happy having their money managed by the trustees of an insurance company or a pension consultancy.
What then are the the options for employees as they face the future?
Option one – roll with it.
The people responsible for making the decision to move your money to new management are trustees. If you are in a group personal pension, only you can pull the trigger. So if your money is moving it is because your trustees think that at worst you won’t be worse off and at best you could benefit from being in a larger scheme with better resources to manage your money.
The option of “rolling with it” and letting the money move across is usually a good option. Multi-employer schemes usually have better retirement options because they are set up on a commercial basis and want to manage your money to and through retirement. If you want to find out what your new pension managers have on offer, you can usually find out online or by speaking to its support team. Your current employer may not resource its trustees to offer these options and may feel uncomfortable taking on responsibility for the outcomes you get. In general, the commercial master trusts into which you are likely to be consolidated will be safe havens for your money for longer and may even be able to pay you a pension in years to come if they adopt a collective approach to turning member’s pension pots into an income that lasts as long as you do.
Option two – manage your pot yourself
For many people, money management is a hobby which they pursue enthusiastically. For such self-confident people there are a range of self invested personal pensions (SIPPs) which are looking for you to transfer your company pension pot. If you have such a SIPP already, the chances are that it has a tiered charging structure that means the new money you bring to it should be managed at a lower rate than your existing money. SIPPs are typically on-line and user friendly for the tech-savvy. They can also offer a range of investment options including a facility not to use funds but to invest directly into the markets.
The well known names in this space include Hargreaves Lansdown, AJ Bell and Pension Bee. If you are looking at SIPPs , you don’t need me to tell you how they differ, you will be able to work that out for yourself and if they baffle you, don’t use them. I have to say I find Pension Bee very simple while some of the more technical SIPPS scare the life out of me but this really is an “each to their own” market where you pays your money and you makes your choice.
Option three – you give your money to your adviser to manage
Many master trusts are managed by pension consultants and could argue that they are “adviser managed”, but you may feel that kind of management a little remote and not what you want.
If you have a financial adviser, the chances are that he or she offers a pension management service which either watches over decisions you take or offers a discretionary management service which takes decisions for you unless you look to over-ride and take back control.
Financial advisers are able to manage your money with you in mind. Investment decisions can be tailored to your chosen level of risk and advisers can advise you of the tax consequences of what you pay into and take out of your pension. They can also help you with the paperwork involved with consolidating small pots and the best ones can also manage the transition of money to reduce out of the market risk and take some assets “in specie” meaning transition costs are kept to a minimum.
Of course all this personal attention is expensive so this kind of option is really the preserve of the wealthy. Few advisers want to manage portfolios of less that £250,000, which is just as well, as the fees for small pots can make this kind of service uneconomic.
What everyone could and should do!
The movement of your money from a company pension to a master trust is an event which you can use to review your plans for the future, even if retirement feels a long way off. It will probably be in your interest to take the line of least resistance and roll with it, but it could be the time you decide to go it alone or employ an adviser to do the work of managing your money for you.
If you’re about to make important decisions about your work and retirement savings, you should consider taking professional advice.
But a good starting point is the free information and guidance available from a number of online tools and resources. If you are among the millions feeling extra financial pressure, consult the Money Advice Service. If you’re 50 or over, phone Pension Wise for free to talk about what you can do. If you’re worried about the movement of your money derailing your retirement plans, contact the Pensions Advisory Service.
Want to know more about pension scheme consolidation?
If you are interested in the dynamics of the retirement savings market , you may want to spend some or all of next Thursday afternoon (17th June) at a pension master class I am helping to organise.
For those who would like to register an interest, here is the link:
Here’s the agenda
WILL PENSIONS CONSOLIDATION DELIVER REAL EFFICIENCIES?
Thursday 17th June 2021
ONLINE IN ZOOM
CHALLENGES FOR MASTER TRUSTS, LGPS POOLS AND DB PLANS
Consolidation is the name of the game in UK pensions. In the DC space, employers are increasingly rolling their plans into master trusts, in pursuit of efficiency gains, scale economies and wider investment opportunity sets, and are strongly encouraged by the authorities to do so. Similar arguments pertain for DB plans, especially smaller ones, though the rush to consolidate is less pronounced to date. LGPS plans have already implemented asset pooling across the entire sector, of course, with the streamlining of administrative activities a possible next step. Delegates to the Masterclass will examine the actual state of consolidation across the pensions industry, whether it is really delivering on its promises, and what further developments need to take place in order to deliver significant and measurable improvement to the health of the industry and to overall member outcomes.
13.30 – 13.50
Meet and Greet
13.50 – 14.00
Welcome and Introduction
Chair Programme Director
Robert Branagh Stephen Glover
Chief Executive Officer Director
London Pensions Fund Authority SG Pensions Enterprise
14.00 – 14.25
Presentation and Q&A: The State of Consolidation Across the Pensions Industry
Magnus Spence Hal La Thangue
Managing Director Associate Director
Our speakers will set the scene with the historic context for consolidation in UK pensions. They will discuss the drivers of consolidation, among them the current low return environment, the increasing burdens of reporting and regulation and the demand for better services to members of pension schemes. This will be explored in relation to trends and projections for the 3 main pensions sectors in UK pensions: LGPS, private DB and DC schemes. He will posit that there is a minimum level of AUM to achieve scale benefits, and discuss the significance of the emergence of new players in the pensions marketplace, including fiduciary managers, transition managers and master trusts.
14.25 – 15.05
Panel Discussion: The Big Consolidators Account for Themselves
Chief Executive Officer
London Pensions Fund Authority
Chief Executive Officer
LGPS and Master trust executives to be confirmed
Senior executives of three large consolidators, representing an LGPS Pool, a Master Trust and a DB consolidator, will describe and justify their approaches to consolidation, and how well they are working. The themes they will explore will include the correlation between size and investment performance; the governance challenges imposed by scale and how to manage them; whether consolidation is necessarily better for members; the pitfalls and drawbacks of rapid growth; and the optimal limits of consolidation on an industry-wide basis.
15.05 – 15.25
Sponsored Presentation: Best Practice in Transitioning Assets
Director of Transitions
As consolidation trends develop further across UK pensions, this will translate into an enormous volume of assets on the move between funds, between institutions and into new investment vehicles. The importance of managing this process efficiently can hardly be exaggerated, given the great costs involved and the need to mitigate significant out-of-market and operational risks. Our speaker will discuss how best practice in transition management is evolving in light of these circumstances and the steps involved in getting this critical process right, including the vital criteria for identifying the right transition manager.
15.25 – 15.45
Coffee at home and Online Networking
15.45 – 16.05
Sponsored Presentation: A Special Case – The DC Small Pots Problem
Director of Policy
It is well documented that the proliferation of small pensions savings pots will continue to grow almost exponentially if left unchecked. This gives rise to a huge administrative burden, rendering many pots totally uneconomic, both to the saver as well as to the pensions provider. Various solutions have been proposed, among them raising the bar on flat rates; transforming the general levy; nudges and pushes to members to consolidate their pots; legislative measures; and various technological solutions, not least the pensions dashboard. Our presenter will outline the scale of the problem and propose a personal view of the best way to resolve it.
16.05 – 16.55
Expert Discussion Groups:
Group 1) Predator or Prey?: Consolidating Smaller DB and DC Schemes
Facilitator: Henry Tapper, Chief Executive Officer, AgeWage
Lead Discussants: Andrew Blair, DC Investment and Governance Lead
Department for Work and Pensions
Paul Budgen, Director of Business Development, Smart Pension
Louise Sivyer, Policy Business Lead, The Pensions Regulator
Further discussants TBA
Savings to employers
Improved contributions to members
Wider investment opportunity sets
Exorbitant costs per member for small scheme administration
Barriers to consolidation
Why even big schemes could shed a bit of weight
Group 2) Next Steps for LGPS Pooling
Facilitator: Mike Weston, Chief Executive Officer, LGPS Central
Lead Discussants: Anthony Parnell, Treasury & Pension Investments Manager, Carmarthenshire County Council
Abigail Leech, Finance Director, Local Pensions Partnership
David Rae, Head of Strategic Client Solutions, Russell Investments
Further discussants TBA
Achievements to date on asset pooling – is it working?
The LPP model: consolidating admin activities as well as assets
Lessons from overseas public schemes
Future legislation and outlook
16.55 – 17.00
Return to Plenary
17.00 – 17.30
Panel Discussion: Feedback from Expert Discussions and Lessons from the Conference
Chief Executive Officer
London Pensions Fund Authority
Henry Tapper Mike Weston
Chief Executive Officer Chief Executive Officer
AgeWage LGPS Central
Discussion group facilitators will report back on their main conclusions, followed by a debate on the main takeaways and action points from the conference this afternoon. This will include who will be the significant winners and losers of consolidation trends, the further step changes that will need to take place and, as a consequence, what the future pensions landscape will look like.
17.30 – 18.00
Final Thoughts and Open Networking