McClymont
Gregg McClymont is on Darren and Nico’s podcast this week (with a 70 minute hard stop and a lot of Gregg). It is an interesting and thoughtful session made in the knowledge but not scrutiny of the FCA’s VFM consultation.
I hope a future podcast will take the consultation seriously, it deals with the issues of employers with workplace GPPs and addresses their IGCs and deserves a session to itself. These may not be core to the PLSA agenda but the VFM of the millions of savers being enrolled into personal pensions will be core to them!
Rather than rage about RAGs, Gregg chooses to discuss the Labour Party’s pension agenda which is now the Government agenda. He alights on the issue of pensions payable from workplace pensions and suggests this is rather more of an issue for Emma Reynolds than has hereto now been considered.
Gregg is concise in his comments- that’s because innovation to date has been as brief as he is, but I suspect that what he is saying is signifcant.
This blog explores how a saver might exchange a personal pension for a guaranteed pension paid by an occupational scheme. Excuse me for getting technical but as I have almost all my savings in a personal pension, this is something I think about a lot.
So how can a personal pension be converted into a scheme pension?
If you have a personal pension pot and are a member of an occupational DB pension scheme , you can ask you DB Trustees if they will take your pension pot and swap it for extra pension. Most will say “no”, some will say “yes” and a few will not know what you are talking about. For instance , if you are a member of the LGPS (whether or not you are paying into the scheme) you can ask to swap your pot for a pension. This is from the LGPS website
You may be able to transfer pension rights into the LGPS from:
- a previous employer’s pension scheme
- a self-employed pension plan
- a pension ‘buy-out’ policy
- a personal pension plan
- a stakeholder pension scheme
- an Additional Voluntary Contributions (AVC) arrangement.
The arrangement you transfer from must normally be another registered pension scheme or a European pensions institution. You may be able to transfer in pension benefits from an approved overseas pension scheme. Your pension fund may refuse to accept a transfer from a pension scheme other than the LGPS.
Your previous pension scheme will offer a sum of money called a transfer value. That transfer value would buy an amount of extra pension in the LGPS. Your request to investigate a transfer is not binding until you have seen an estimate of the amount of extra pension the transfer value would buy and confirmed that you want the transfer to go ahead.
- for more details on this offer – scroll to the bottom of this blog
This may come as a surprise to many people (and to their advisers). How many fact-finds include a question on whether a saver is aware of their DB options? How many advisers explore those options? How many people are in drawdown or have bought an annuity without considering the pension they might get from the DB scheme they are in?
Of course, most occupational schemes do not want to take on further liabilities because employers are sick of doing that. Employers generally want to get rid or their schemes to insurance companies, superfunds – even the PPF (if they can get away with it).
But there is growing demand from banks and private equity to back defined benefit pensions and I wouldn’t be surprised to see more schemes offering scheme pensions as an alternative to annuities and drawdown. Why?
The economics of defined benefit work in favour of offering DB pensions.
If you believe that you can invest money at gilts +2 against a target of gilts +0.5% you can put your money where your mouth is and back a DB pension to take on more liabilities.
If you lose, it is your capital that is at risk- but that’s an equation that the private equity market is very used to. If you win, you get a share of the upside of the pension fund, which can lead to substantial returns for private equity houses. These guys aren’t charities , but they can see ways to exploit market inefficiencies to benefit both their customers and their shareholders.
Relative to annuities, the economics of scheme pensions are better for the secondary banks who offer capital backed pension (known as capital backed journey plans).
Pension purists do not like this. They want pensions to be backed by employers not by banks and private equity houses. This rather ignores that many of the sponsors of private pensions are now employers owned by private equity and it also ignores the reality that most of the professional trustees and advisers to schemes are in firms owned by private equity.
Pension SuperHaven is a private capital backed pension scheme set up to provide scheme pensions at better guaranteed rates than be achieved from the annuity market.
As Gregg McClymont points out, despite people telling surveys they want a guaranteed income for their money, they don’t buy annuities (in great numbers) and say that annuities are bad value.
If the Labour party (now the Government) is looking for a solution to its challenge to master trusts it should read the following section.
How everyone can get a DB pension from a personal pension pot.
I mentioned at the top of the blog that a very few people might get an offer from a DB scheme of a DB scheme pension in exchange for a DC pot. But most won’t and actuaries are unlikely to offer pot holders a competitive rate to an annuity, unless they really want to. Which is why no one talks about this option – UNTIL NOW.
Pension SuperHaven is an occupational DB scheme which offers a transfer-in facility to its members (who are Pension Superfund and Disruptive Capital staff).
But f you are not working for PSF or Disruptive , you can get a scheme pension from sections of Pension SuperHaven inside other occupational pension schemes. Most master trusts will offer savers a transfer in for DC pots even if they are not workers for a participating employer.
If you join a master trust with Pension SuperHaven inside it, you can – when the time comes for you to want a pension , cash all or part of your DC pot for a scheme pension backed by Pension Superfund Capital (the sponsor).
The benefits to those who transfer their pension pot to mastertrusts with Pension SuperHaven inside aren’t just better guaranteed pensions. The upside from successful management is shared by the trustees who ensure that pensioners get a fixed percentage of the amount that would otherwise be paid to the sponsor.
Members can choose to have their pension increasing, paid to spouse if the member dies first or buy a guarantee that the pension will pay a tax-free inheritance if the member dies early on.
This isn’t pension fiction – it’s pension fact
I am currently working with master trusts and occupational pension schemes to get PSH inside. I intend to have the first one launched by September 30th 2024. That will allow people with pots and no pensions can join Pension SuperHaven because they are in the master trust already or because they choose to join the master trust to get a better pension.
In this week’s podcast, Darren observes that in the eight years since the announcement of pension freedoms there has been no innovation in terms of “decumulation”.
Within a few weeks, we will be able to announce pension fact and by the end of this year, I expect that the concept of PSH inside will be a regular conversation amongst the funders and sponsors of occupational DC schemes and their trustees.
Appendix – More details on swapping your pot for an LGPS scheme pension
You have a year from joining the LGPS to opt to transfer your previous pension unless your employer and pension fund allow you longer. This is a discretion. You can ask your employer and pension fund what their policy is on late transfers.
If you decide to proceed with the transfer, the extra pension will be added to your pension account in the Scheme year that your pension fund receives the transfer payment.
Transferring your pension rights is not always an easy decision to make. You may wish to get help from an independent financial adviser.
