Below are more comments from Claer Barrett’s insightful article on the damage de-risking did to the retirement prospects of one reader. You can read the article here, if you want to read it but have no subscription, mail me at henry@agewage.com for a gift link
The 189 comments on this article are varied both in quality and length, I’ve picked out the ones I found most insightful. The star comment was picked out by Claer Barrett, “no one cares as much about your pension as you do”.
Toby N – on people want to know about their pensions
When I became a Member Nominated Director of my firm’s DC scheme the biggest surprise to me was how interested people were in their pension – when given the opportunity to be. I put together a series of three lunchtime seminars – sort of pensions training for members – thinking that maybe half-a-dozen keen so-to-be-retirees from the workforce of c300 would turn up. Around one hundred came! People are interested in their pensions, but – my goodness – providers can make it hard to be, and employers don’t always meet the interest with training or information.
Mr VFM – on lack of personal performance information
My biggest bugbear is the paucity of information provided to scheme members. Yes, you can see the aggregate increase (hopefully for most) in the value of the overall fund and generic individual fund performance information, but not tailored to the performance of the individual scheme member’s investments. Providing this information on a periodic basis or online, would enable people to take control and more actively manage their pensions rather than to learn of unpleasant surprises, like Martin, when they need them.
Arden8 – on de-risking
The pension consultant/actuarial professions have a lot to answer for over that little phrase, “de-risking”. In most cases it has simply resulted in one risk being replaced by a much greater different risk. Disgraceful.
Androcydes -on asymmetric risks
Lifestyling has resulted in real losses. The argument that you still buy the same income is bogus since the higher interest rates reflect higher inflation and a fall in the real value of the annuity a pot can buy. This is just the latest example of group think. Most financial advisers knew the risk of loss was big to invest in fixed interest when 10 year bonds were yielding 0.5% but the risk was to the investor, while the risk of recommending anything different was a risk to the Financial adviser.
French James – on why DB pensioners should remain in equities
Having moved around a bit I am lucky enough to have both DB and DC pensions. I regard the DB pension as bond or annuity like and instructed my DC provider to keep me invested in equity funds. They ignored this and moved me into a “lifestyle” strategy selection of investments.
When I found out some months later and challenged them they pretended it was my fault at first but eventually reinstated my choice of investments after a lot of argument and made good the loss I had suffered. They did not compesnate me for their carelessness. Not wishing to suffer further I moved my DC pot (and future contributions) to a SIPP.
I know what I’m doing but I am fairly sure the average person would be unable to deal with this.
Unwise Investor III On making DC more like DB by looking overseas
There are two products found overseas which can be of substantial help to future UK pensioners: target retirement funds (which apply lifestyling wisely) and deferred annuities…
For more great comments, read my weekend blogs
Will people take their pension losses to the court
“No one cares as much about your pension as you do” – but Claer Barrett comes close.
The Lifestyle fiasco in 2022 was an accident waiting to happen. The United Kingdom’s credit rating was downgraded from prime ‘AAA’ in 2013 and then again in June 2016 (‘AA+’ to ‘AA’) and October 2020 (‘AA’ to ‘AA-‘). The UK was no longer one of the world’s ‘top 20’ sovereign debt issuers – we were relegated from the ‘Premier League’!
Why does this matter? Well, sovereign credit ratings are used by global investors to gauge the credit worthiness of a country and should impact on its borrowing costs (the yield on its debt), except in the UK it didn’t! Consider the position at the end of 2021 – long term UK gilt yields had ignored the rating downgrades over many years and fallen to 1%, equivalent to a wholly irrational real return of minus 2.5% (long term inflation expectations, as measured by the ‘inflation swap’ rate, were 3.5%.) Yes, we know the market had been distorted by Quantitative Easing (‘QE’) and the activity of DB pension schemes but by the beginning of 2022 the Bank of England was moving from QE to QT (‘Quantitative Tightening’) as interest rates started to rise. At the end of 2022, the long gilt yield had risen to 4%, with a real return of plus 0.5% – sanity was returning!
DC schemes had no need to be still slavishly adopting a lifestyle strategy designed for the ‘pre-2015’ world of compulsory annuitisation. They were effectively taking a pathway along a cliff-edge that they knew (or should have known) was inherently unstable and, therefore, likely to collapse at some point!