Transfers. Opt-outs. Non-joiners. Three simple words that have caused
immeasurable pain for so many advisers and clients alike – and the
pain is still present for all to see.
Industry commentators exclaim left, right and centre about the
injustices of the new review culture after the “father of reviews”
but nothing ever sticks. Nothing is ever followed through and none of
the life offices seem to really care.
After the precedent of the pensions review, adviser firms had
endowments, FSAVCs and split-caps to contend with. And as a result we
all have to deal with the farce that is professional indemnity.
Having failed to fully appreciate the different types of pensions
that needed reviewing – for we all agree that opt-outs and
non-joiners did need reviewing – the way was set for any class of
speculative business to be “reviewable” and to give the customer the
benefit of “early hindsight”.
Never mind that at maturity it is possible that it was good advice
after all. It never fails to amaze me that this early hindsight
clause is not picked up by the media.
And if the powers that be have learnt the “lessons” from the pensions
review, does that not imply an admission of guilt? I cannot for the
life of me decide what the difference is between a transfer and an
endowment. They are both aiming to build a fund of money that might
or might not be better than a different course of action. But until
we reach the end point how can we decide on the merits of the advice
part way through?
ASW Steel Group employees are a good example to mention here. Had
they realised they were last in the pecking order on wind-up, they
might have changed their attitude to saving. What if they had
transferred or opted out, or not even joined – would they be claiming
under the pensions review? Or perhaps they wished they were a little
older and therefore would benefit by being a pensioner now?
These options were available to them at all stages – it is just that
the one they chose is the one that seems to be paying the smallest
dividend. I wonder if there are any ASW transferrers (let alone
optouters or non-joiners) in the pensions review? Or are they
counting themselves lucky at the moment, having made what at present
seems like a good decision?
We were involved in helping several “Maxwelled” members some years
ago. Their current employer had about a dozen staff with missing
benefits. Our job was to organise replacement funds that were to be
balanced by whatever was recovered when the Maxwell liquidators had
done all they could.
Ironically, all members came away with very handsome benefits in the
end and were mightily relieved at the outcome. This does not, of
course, recompense them for their considerable anxiety, which was
dreadful in the early days of the proceedings.
The difficult thing to say to the ASW members is that the pecking
order on wind-up is known and that nothing in life is ever guaranteed
– not even their pension. Information to make a judgement was
available to the members all along.
It is just they chose not to investigate fully, particularly in the
wind-up scenario, probably because it was the last thing they
expected to happen. Well that line does not work anymore these days.
We all know that even the biggest companies can go bust, along with
their pension funds.
What is also impossible to predict is the eventual benefit paid to
these people. If the liquidators do a good job, they might be
pleasantly surprised. They are quite rightly worried, but it is a
little ironic in the context of the pensions review.
Just imagine the utter pandemonium in 10 or 15 years time when we
have double digit inflation and soaring stock markets (again) –
giving personal pension/Section 32 transfers better benefits than
(defunct?) final-salary schemes.
Rest assured thousands of hard-done-by advisers will no doubt be
coming out of retirement and baying for blood (and compensation) from
the then regulator. Of course, the excuse from the regulator will be
“well don't blame us, it was the FSA's mess and they don't exist any
more”. Or should that be the PIA? To be honest, I am not really sure
The PIA/Treasury completely misunderstood the difference between the
various types of pensions and the mess we are all in is the result of
that. The Treasury is now furiously back pedalling and insisting it
is not their fault. Unsavoury though it may be, someone has to put
their neck on the block and tell people how it really is – I just
wish there were more of us doing it.
Tom Kean is compliance officer at The Analysts