Advice you can trust?
There are many instances where the advice given to trustees is at the very least questionable, says Teresa Hunter
He was a man who knew his mind, which is more than can be said of the thousands involved in taking important decisions about company pension schemes.
Many, respectfully referred to as well-intentioned amateurs, are clueless about which action to take when presented with a complex set of alternatives. They rely entirely on advice from their professionals, be they lawyers, actuaries or financial advisers.
But how good, or trustworthy is such advice? The reluctant conclusion has to be not very, given the rise, small but a rise nevertheless, in both actions by the Pensions Regulator, and the numbers of scary letters sent to trustee boards. Funding plans for defined benefit schemes will be met with one of five responses.
The best kind of letter, indicating all is well, goes to those well-maintained Mercedes schemes, gliding down the motorway within the law.
If something small is untoward, the regulator will point this out, and ask for it to be dealt. These are the cheeky Golfs, touching 75 miles per hour. Outside the law, but unlikely to be booked.
The letters turn ugly when regulators are confronted with Mondeo man, foot down and 90 mph all the way. Red flashing lights, and you’re on the hard shoulder having some awkward conversations with the cops. Those doing a ton in a bashed up Toyota Supra will be hauled by the scruff of their neck, out of the driving seat, and pushed hard up against the wall. At this point the regulator steps in as happened recently, in the EMI and Polestar cases.
Getting roughed up by the regulator, when you’ve paid a small fortune for good advice, which you have taken, can be a very disturbing experience for the average trustee.
I am told looks can certainly kill, in meetings with the regulator, trustees and advisers, where boards realise they have been sold short. The professionals are often shown the door after just such a brush.
So what goes wrong? Well, to quote Princess Diana, there are three people in this marriage: advisers, trustees and Regulator, so it gets a bit crowded.
Actually, it’s even more complex than that, with conflicts of interest legion. The employer, who himself may be a scary animal, is usually aggressively instructing his advisers to cut costs.
Trustees make tamer clients, and as such don’t send testosterone pumping round their advisers’ veins. Could it be their professional representatives cave in sooner when confronted with the employer’s big beasts and accept bosses’ pleading about difficult trading conditions, only for the regulator to take a totally contrary view that the company is wealthy and can afford more despite the slowdown.
Trustees are sometimes also advised to accept Alice in Wonderland projections simply to make the numbers add up.
Thank God for the Regulator I say. If you can’t trust the trustees to look after your pension, because they are not properly advised, who can you trust?
Not always their advisers, for sure, who in some cases seem to have a very different set of goals from their clients. Trustees have a legal duty to do the best they can to safeguard their members’ pensions. But as they are not normally lawyers or actuaries they have to follow advice, because if they don’t they could be sued.
But if this advice falls short of pursuing their members’ best interest, then they can be sued for following that advice as well. Who’d be a trustee?
Lawyers and actuaries, on the other hand have two over-riding drivers. They want to earn fees with as little hassle as possible and make sure they hang on to the client.
As such their focus is on minimising the workload, while keeping trustees on the right side of the law, and out of jail. But I can’t help wondering, if their advice would be the same if it was their pension at stake. In which case, trustees could do worse that take a tip from Chesterton.
Teresa Hunter is a freelance journalist