Let’s kick off with the institutional takeover of your company pension by offshore insurers

Let’s follow up with the offshore insurer’s move on the “wealthy’s wealth”.

Both stories are from this weekend’s FT , the first from camilla.palladino@ft.com and the second our familiar Mary McDougall and both report on the movement of UK generated money to offshore sources to avoid risks.

To be exact, private sector UK employers are exporting their pension funds to overseas private equity funds and to offshore reinsurers. Meanwhile those wealthy enough to have UK tax liabilities are finding insurance bonds to protect their wealth from UK taxation (or the threat of it changing).

Behind these stories are advisers who act as intermediaries, whether the financing of corporates or the maintenance of high net wealth estates. They are not the same advisers but they perform the same function – the result is less tax to pay for the bills the UK Exchequer has to pay and less capital for British industry to invest in growth.

Inquiring into the deals being done by companies off-loading their insurers has her tongue in her cheek about the proprietary of the transactions for the companies ridding themselves of pension liabilities and the short term profitability of the buyers (insurers).

The question for the buyers is how they will make a decent profit. For that, they seek to reinvest the money into higher-yielding securities such as equity-release mortgages, infrastructure debt, securitised obligations and direct lending. In other words, the rise in pension deals and the wider boom in private credit are inextricably linked.

If anyone is to be splurging on private credit, it should be insurers. Their liabilities fall far into the future, so they don’t need to worry about short-term price swings or liquidity.

Still, unlisted credit is much harder to price than plain old corporate bonds, and warnings about a bubble in private assets abound. The pension sellers, of course, don’t need to worry about such things. It looks like they are getting the better deal.

It is of course difficult to find where our pension funds end up, but as my recent articles make clear, there is real worry at the Bank of England’s PRA about whether the rush to the door is in the interest of either the pensioner’s or the economies good.

From offshoring pensions to offshoring wealth

The offshore bond is a notorious haven for the financial villain. Over the years this blog has given instances of fraud carried out using the opacity of international life companies. The latest episodes lead Pension Life to point fingers at some of the companies mentioned in Mary McDougall’s article.

Of course there is a clean as a dirty side to offshore life companies but the advisers (intermediaries) in this space are very variable in quality. Mary’s reporting sticks with the clean end of the market

The largest providers of offshore bonds include the international divisions of Canada Life, Standard Life, Utmost and St James’s Place, with Ireland as a popular jurisdiction, but some also writing business from the Isle of Man and Luxembourg.

“Recent UK tax reforms have contributed to a growing interest in international bond products,”

said Sean Christian, chief executive of Canada Life International, which had record flows in the first half of this year. He added that changes such as the abolition of UK resident non-domicile status, higher capital gains tax and the inclusion of pensions within inherited estates from 2027 were prompting people to seek

“estate planning flexibility combined with tax efficiency”. 

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Common themes of fear and greed

A common theme is our fear among sellers profiting the private markets and insurance companies that sit outside the UK. The fear is alike whether retirement funds sit within company or self invested personal pensions.

I do not blame the FT for pointing to what is happening, it is not for them to tell their readers what to do (or not to do). It is to report on what they are doing.

Nonetheless, to suppose that offshoring UK money to maximise opportunities created by structural financiers, advised on by a range of advisers (not all of whom are UK regulated) and invested by organisations that range from high finance to scammers is a worry.

We have a Government in a position to take decisions, in another blog printed this weekend on here William McGrath argues for a way to ensure that UK pension funds remain as such. 

We have in the FCA and PRA, regulators who should know of what is happening and ensuring that as far as possible (within their capacity) UK money is safe for the wealthy and the economy, at least from scammers. It is necessary to have sites like Pension Life and organisations such as the Transparency Task Force.

In praise of Chris Sier

This blog is dedicated to a man who is not well. Chris Sier’s drive to Transparency lead to Clear Glass. Chris was a founder of Transparency Taskforce and has remained to ensuring we know what we are doing with other people’s and our own money.

Dr Chris Sier in 2017