You can choose in this country whether to rely on the NHS or go private, whether to use state education or send your children to private schools and you can choose whether you want your pension managed using a publicly available scheme or a private arrangement.
Most people do not think of using SJP as the equivalent of opting out of the NHS or state education but that analogy holds at a number of levels. You pay for exclusivity, for personal care and ultimately you hope that the extra money you pay, pays off in terms of better long-term outcomes. All analogies hold.
I don’t think anyone should begrudge paying more for a service that delivers more and SJP and other good adviser’s customer ratings suggest that people do find the extra cost – value for money. If it doesn’t deliver, people can go back into the public system which is managed for the rest of the population by pension providers who do not provide advice.
But “No advice” should not mean no information
Advice means your cashflows, your tax, your investments are managed by experts. A financial adviser is there to make sure the right amount is there for you , at the right time and is paid to you as you need it. That’s the deal that the adviser signs up to as his or her consumer duty and – subject to disclaimers about markets – it’s what you as a consumer can expect.
The duty on “pension providers” who are not offering advice may or may not fall under the FCA’s consumer duty but I would argue that the same fiduciary duty applies to occupational schemes and especially to commercial occupational schemes we know as “master trusts”.
In an earlier blog, I argued that the consumer duty of a pension provider is to provide a pension. I argued this from the perspective of someone who has no intention of paying for advice to be told how this happens. The vast majority of people expect to get paid a pension at state retirement age without needing advice and for most people saving as part of auto-enrolment , the expectation is that things will be “done for them” when they need their money. That is a product expectation.
But there is another part of the expectation that relates to this question of “private and public”. That is the duty pension providers have to give consumers the information they need to make informed choices. This forms part of the consumer duty, as laid out by the FCA and is stretches to those who give guidance and advice , who can only do so if they themselves are informed. Pension Providers must give those giving information on pensions, access to data under the GDPR – where permissions have been granted.
This will become increasingly important over the next five years as pension dashboards become the standard way in which people collect the information they need to take informed decisions and I fear that many pension providers will struggle to get to first base in meeting their dashboard duties. If you cannot even identify your savers , let alone give account of those savings in terms of “how they’ve done”, then you are simply not up to the job.
Why information is so hard to come by.
If we think back to the genesis of workplace pensions, we can see that the consumer was expected to get what they had been promised. Occupational Schemes had “scheme rules” which established people’s rights to a defined benefit and there were “policy provisions” that governed what people got from the pot by way of “money purchase”. These rules and provisions had allowances built into them to cover the administration and communication of benefits and there really wasn’t any need for savers to engage, at some point they would stop saving and could start spending.
When the world started changing is when “choice” started entering into the equation. The early unit-linked pension providers, Abbey, Hambro Life and a lot of flotsam that followed in their wake, sold the dream of self-managed investments that chimed with the Government’s call for a share-owning democracy. People who had advisers who helped them take decisions might be alright but many advisers were rarely seen after the sale of the product and many of the promises made about advice were not kept, the only thing kep was the commission. The information given in policy provisions for the old fashioned providers usually included a guarantee on the rate at which a pot could be exchanged for an annuity and this was usually linked to other guarantees within the concept of “with profits”. This was all part of the “done for you” spirit that grew up in the last decades of the 20th century, DB and DC were done for you – until things went wrong.#
The way out of these “done for you” policies was a new kind of pension where people were treated fairly as stakeholders in their own retirement – the stakeholder pension was an attempt to allow people to do things for themselves at a lower cost than “done for you” and it depended on simpler products that could be explained by decision trees – do it yourself.
This was fine so long as the DB pension remained solvent and annuity rates were reasonable, but when annuity rates collapsed, as interest rates fell in the 21st century, things started going badly wrong. DB schemes appeared insolvent under new accountancy rules, stakeholder pensions were not adopted by most employers and it needed a major pensions review , auto-enrolment and the abandoning of DC pensions (annuities) to restore a sense that pensions were working.
But by then – pensions weren’t working. Not only had the “done for you” pension been abandoned but the DIY culture, which was supposed to take over from “advice” post RDR, had not progressed. Consumers were given a Pension Wise interview, then “investment pathways” but no pension. What was worse, the promised pension dashboard , designed to give those with pension policies or occupational pension rights, has been delayed so that it is unlikely to arrive till October 2024, over 5 years later than promised.
Public or Private?
Private pensions have proven immensely popular, IFAs and organisations offering restricted advice, such as SJP, are hugely popular with those who discover they are wealthy through their “pensions”. Billions has been stripped out of the DB system into private wealth management programs and many of the early – well funded – occupational DC scheme pots are now being transferred to advised SIPPs or being managed by those sophisticated enough to benefit from AJ Bell , Hargreaves Lansdowne and Pension Bee SIPPS. People will pay more for advice or guidance so long as they can see its value.
But most people don’t see value in paying extra to have someone manage or advise on pensions, they know they are already paying for this (just as we know we are paying for the NHS and state education) , why pay twice?
Which is why the promise of a pension from the workplace pension should be as dependable as the NHS being free at the point of care or the right to a state education.
The pension that our pots offer us will of course be dependent on factors that we can’t control, but it should offer us a reasonable rate of conversion that gives us dignity for as long as we need the income. There should be no need to pay for advice for this.