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Tom Kean: Pensions misselling disaster waiting in the wings

Tom Kean

I have been in financial services longer than I care to admit and I reckon I have seen more than my fair share of ups and downs. One downer beginning to gain traction among the lobbying community is the ever-louder call for us to be left alone. This call is not as entirely selfish and self-serving as it might sound, however.

Of course, we all hate the constant and unrelenting – not to mention costly – burden of regulatory obligations, especially if one feels it is just change for change’s sake. Slightly humorously (and I really do mean only slightly), certain quarters feel this complexity is keeping them in a job: if it were not for complexity, certain clients with a bit of confidence could surely do most of this by themselves.

But there is a serious side to all this. The constant tinkering with our pensions system is eroding the long-term prospects in the consumer’s mind, with the pendulum of advantage swinging wildly between the various changing tax breaks. Not only that, we have a system that favours final salary mechanisms one decade, then money purchase the next.

Nature abhors a vacuum, so it is inevitable money flows, just like water, downhill to the most tax efficient home it can find.

Most of us have clients who, on the face of it, are cautious but who are suddenly requesting transfers from final salary schemes, akin to the wild movement of assets back in the late 1980s and early 1990s. Fast forward 10 years and we all know what happened next. The same will surely happen again.

It is a clear and obvious disaster waiting in the wings. The current short term feast will once again turn to famine if subsequent rules change the pendulum back once more in favour of final salary schemes.

And it is perfectly easy to imagine the scenario. Political will changes, as does the colour of the politician’s rosette, and those nasty, greedy pensioners with huge pension funds must be reined in a little. Stop letting them pass on their funds on death tax-free and restore the good old fashioned link with death and dependents, and you have a recipe for wholesale misselling, with aggrieved clients realising it is once again better to have assets held in a final salary regime with all the perceived certainty that affords them.

Huge resentment is just a legislative fiddle away and it is simply unfair to everyone we must live with this constant second-guessing. It is a system designed to catch you out, not pull you in.

The solution, however, is really quite simple. Politicians of all persuasions must accept changing anything in financial services risks the erosion of consumer confidence, which in turn reduces the sums people are prepared to tie up for the long-term benefit of not only themselves but the wider UK economy.

There is a price to pay in asking consumers to delay monetary gratification – and tax relief is the most effective. It is the least we can do to give them that confidence, otherwise they will continue to buy rental properties and branded Champagnes.

Tom Kean is director of Thameside Financial Planning


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There are 8 comments at the moment, we would love to hear your opinion too.

  1. Fair point Tom however we need to show a united front should the government decide to tinker further. Its becoming increasingly difficult for professionals to keep up with all the changes and my belief is enough is enough. As an industry we have been steam rollered time after time and we need to say no more.

  2. Quite so. And one item which will keep those lovely people at the FOS busy for years to come will be drawdown. Many are only now looking at vastly depleted funds and wondering how much worse it can get.

    As I have said so many times before, the industry loves drawdown as it is a source of almost never ending fees. The Government likes it because it accelerates the tax take. The clients have largely been conned into thinking it is a great idea and will eventually come to question this wisdom.

    I would remind readers of a quotation by one of pensions great gurus – Steve Bee. In his 2005 paper (yes! that long ago) entitled ‘Pensions and the dawning age on the Chubby Cats’ he said:

    ” Income drawdown has effectively become a fairly expensive form of self-managed annuity that only the wealthy have really been able to take advantage of, and even then that advantage has been quite limited.”

    So how much worse is today’s unseemly scramble to this latest product of potential grief.

  3. Christine Brightwell 1st March 2016 at 2:29 pm


  4. ian richardson 1st March 2016 at 2:42 pm

    “Waiting in the wings” understates the problem – it’s more a series of ticking time bombs ….

  5. Julian Stevens 1st March 2016 at 3:14 pm

    Yes, there is much sense here. Unlimited Income DrawDown, non-advised Income DrawDown, the widespread assumption that Income DrawDown offers some magical means of extracting a quart from a pint pot, the wasted opportunity to boost annuity rates by way of special high yielding gilts available only to annuity funds ~ they all add up to a highly dangerous recipe for many people to overspend and then run out of money prematurely, as something like a third of people do in Australia and the USA.

  6. Douglas Baillie 1st March 2016 at 4:03 pm

    Just wait until the Claims Management Companies really get going!

  7. Well said Tom. Best way to slow the change would be a pledge NOT ro ever vote for a party if headed by a tinkering ex-chancellor. This budget would then be George’s last chance NOT to tinker if now was the starting pledge.

  8. Surely the next big pensions scandal will relate to contracting-out?
    Because almost 30 years ago advisers should have had the foresight to know that the government would introduce a new method of calculating the rebate-derived amount and that it would be so punitive.
    Where are your crystal balls eh?

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