Thanks to Global Finance Director Peter Wilson for these two questions which I’ll answer now and incorporate into our explanations to clients and prospective clients on Pension SuperHaven’s website
Why, if I don’t need to consult an IFA to buy an annuity, do I need one to buy a better pension from PSH? Is this situation likely to change?
I’ll give two answers to the main question.
In trustees we trust
If you are swapping a pot in a DC occupational scheme for a pension offered by the trustees of that scheme, there is no need for you to take advice. The trustees have done your due diligence and by offering PSH as the default option or a choice for their members , they have allowed you to transfer without need to speak to an IFA.
This is not chicanery, the Government recognise that good as “advice” is, it is not affordable by many and not imperative where proper trustees are acting in your interest.
The second is about the general principle behind advice. Having been an IFA for 20 years of my career I can say that most of the value I provided was in stopping people doing stupid things rather than getting them to do clever things ( a point made by Richard Parkin on a recent podcast).
It is not stupid to invest in an annuity, it may not be the best option but it is one that does what it says on the packet, which is why people can buy annuities without taking advice. They will not come to harm by doing so. The same can be said for PSH. the only reason that annuities get an exemption is because of the excellence of the ABI lobby, the power of the PRA and the common sense of the FCA.
In time, I suspect that people will be able to purchase a scheme pension with a personal pension pot but right now the FCA regard doing so as “an arrangement”, so if you are taking this decision for yourself , then we want you to take advice. I would emphasise however that by transferring first to a master trust (and most will take individual savers even if you are not auto-enrolled into the scheme) then you do not need to take advice nor take advice – so Peter – you just need PSH to announce the master trusts we will be inside and you will be a happy man!
Change will come but we can’t hold our breath on this burning platform
You ask if the situation is likely to change? This is with the DWP who make the rules on what an occupational scheme can accept as a transfer and whether red and yellow flags need to be thrown if someone applies to transfer directly into a DB pension scheme. Right now the rules are that you need to have been a member of a DB occupational pension scheme for three months and have payslips to show you are employed by the sponsor, to transfer money to such an arrangement. As mentioned above, this does not apply to DC master trusts. I expect this will change in time as PSH type arrangements become common, but right now I don’t see changing these rules as a Government priority (much as I wish it was).
The freedom to do stupid things..
Peter continues
If not then I think PSH is going to lose out to annuities for simplicity. It sounds slow and bureaucratic which is disappointing because I’d be otherwise quite interested in the proposition. Given I have the freedom to do stupid things like cash the whole lot in and pay a hefty tax charge, without requiring advice, then I should be able to buy myself a decent pension without having to give an IFA a slice to tell me what I already know (something I have no intention of doing).
I am afraid that “slow and bureaucratic” is a description that I’d apply to all pension transfers, including the transfer of pots to annuity providers. However, the two stage process outlined above need not be overly onerous. Master trusts can pass your money once received to its DB section (PSH inside) in a straight through process , once they know the provenance of your money and are clear about your intentions.
Your point about other options are well made. You can of course cause yourself considerable financial harm by cashing out large parts of your pension pot and do so without advice. There are safeguarding mechanisms in place (Pension Wise and MoneyHelper) but let’s face it, where advice is most needed, it is rarely available.
The Government has made it a priority for the Pension Schemes Bill, (which I hope to see an Act in months rather than years) to get people turning pots to pensions. Annuities do offer a means to turn pots to a guaranteed income for life, but only a pension offers you the certainty of income and the upside that comes from long-term investment
