Al Rush

Al is a friend and someone I rely on to tell it as he sees it (not necessarily as I see it). But what he says bears listening to , as it’s experienced talk, not stuff off the top of his head.

Yesterday I wrote a blog about the bias’ that lead to people swapping rights to pensions , for the freedom of a capital reservoir on which they could draw. Al and I have different views on this! He speaks for his clients who are generally people who do not live in the bubble of financial services , he is his client’s voice and he speaks through micro-blogs on twitter.

My aide-memoire for trustees.

1. Members’ lifestyles and aspirations aren’t what they were ten/fifteen years ago, we must accept that. Folk want control. They realise they might screw it up, but they want self determination. How to work with them – maybe at arm’s length?

— Rush (@exRAF_Al) April 14, 2022

3. Consider bridging pensions and partial transfers to defuse the risk. If you tell a child they must not open a door, they want to see what’s behind it. If the door is open and you step aside, the allure has gone. Folk want more money earlier, that fact must be recognised.

— Rush (@exRAF_Al) April 14, 2022

4. Not all reasons to transfer out are the same. Treat someone who simply wants to “🤠 Make. More. Money!!” differently to someone who may have a sensible cash flow modelled pillage and plunder drawdown strategy to get them to state pension age in order to (eg) be tax efficient.

— Rush (@exRAF_Al) April 14, 2022

5. Mrs Smith is 60, has worked at Tesco since 1988 and has a £42,000 CETV (Vs pin money on the drip). She has run a household for four decades and possibly (pro rata) has less personal debt than most financial professionals. Should we trust her through a more respectful prism?

— Rush (@exRAF_Al) April 14, 2022

Mrs Smith’s dilemma

At an exchange rate of 1:25, Mrs Smith is due a pension of around £1500 pa or £30 pw which will go up with inflation (capped at 5%) and some of that may pass on to her partner/spouse. Is this pin money? I don’t know Mrs Smith – Mrs Smith knows.

If Mrs Smith wants to use her £42,000 to bridge to her 67th birthday , by drawing down an equivalent (say £8,000 pa), a CETV might get her there, if she didn’t have to pay advisory fees to get at it, but the fees probably spoil her plan. Al probably can’t make her plan come true and offer her a value for money alternative to “pin money”. Mrs Smith is a regulatory loser. So she’s got to work on or find another way to fund her pre-state pension dilemma.

But if Mrs Smith can’t work and doesn’t have her pension in payment, she has an entitlement to universal credit and a number of benefits attaching to it which she might lose if she had the thick end of £40,000 available to her (even in her pension pot).

And Mrs Smith , if in good health, may have half her life again, ahead of her. The final years of that life are likely to see her get increasingly dependent on others for decision making. She wants her money now, but will she see that as a mistake in 20 years when her money has run out?

Or will she, paradoxically, have a greater claim on the state’s pension credit as a state pensioner if she has no private pension? Benefits, not tax, are probably going to be Mrs Smith’s bigger consideration, (but see disclaimer at the end).

I would not want to be taking these decisions if I was Mrs Smith but she presumably has the carrot of a £42,000 CETV dangling in front of her and she’s anxious she can’t access the pot – because no adviser will advise her.

Mrs Smith probably knows about WASPI, if she’d been born 10 years sooner, she’d be a pensioner today. The hopes of working people to retire at 60 today have to be based on more than a CETV of £42,000, Mrs Smith has to know that  – or have that explained.

Things are not going to get easier for Mrs Smith or for the cohorts of workers that come after her.

What are CETV’s for?

I am quite sure that Norman Fowler, when establishing the right to a CETV in 1987 , saw Mrs Smith, as he saw Sid, as a founding member of a new shareholding democracy where people had a right to their money and to determine how it was spent – rather than be beholden to a trustee’s actuarial formula for a “pension”.

And Al is of the same belief, and it is a properly held belief which I am not criticising. In theory Mrs Smith could do as well on her own as she could as a member of the Tesco Pension Scheme.

But it’s not as simple as that. Because Mrs Smith is up against the grim reality that the financial services industry will “pillage” her savings over the next few years so she will likely be considerably worse off than had she taken her “pin money” from the scheme.

Even if Al fitted her up with the best value SIPP, the most appropriate funds and the best cash flow plan, I simply don’t think he could provide Mrs Smith with a good deal on that money. That money needs long-term investment by Tesco’s fine in-house team so that Mrs Smith gets her pittance for the rest of her life.

And if I was in the room and arguing against Al , I would point out that no matter how attractive that £42,000 looks today, there are such benefits for deferring its consumption that I would not advise her to take the money (even if I can’t give such advice). That would mean Mrs Smith would have to be the most insistent of customers to take a transfer,

CETVs are many things, but they are not for Mrs Smith.  That’s my “aide memoire for trustees”.

Disclaimers

This of course assumes that Mrs Smith’s circumstances are as I imagine them, that she isn’t at death’s door, that she doesn’t have a big inheritance on the way, that she doesn’t own a load of bitcoins or that she isn’t going out with Elon Musk.