View more on these topics

Nic Cicutti: Freedoms are sowing the seeds of another pensions crisis

Nic Cicutti

You probably won’t know this, but this year is the 30th anniversary of Money Marketing’s launch in 1985.

I was reminded of the fact because earlier this week the magazine hosted a dinner in London which several of Money Marketing’s long-term contributors were invited to attend.

True to form, we were invited to sing for our supper, being filmed while a camera crew asked two questions: “What do you think has been the most defining moment in financial services in the last thirty years?”, and “What do you predict will be the next big shake-up in financial services?”

For me, the two answers were “pensions” and “pensions”. The defining moment in financial services was the introduction of the 1986 Social Security Act, which gave employees the right to leave or decline to join their employer’s pension scheme. At the same time, it introduced personal pensions to the general public.

Back then, government experts predicted that 500,000 people would opt for a personal pension, but that figure was reached in weeks. In two years, almost four million personal pensions were sold, many of them consisting solely of rebates paid to persuade people to opt out of Serps.

The number of personal pensions rose to more than five million by 1993, just before the edifice began to crumble in the wake of an inquiry by the Securities and Investments Board, the first City financial regulator, into suspected misselling.

Back then, we totally underestimated the likely impact of what was to follow. When the Financial Times’s former pensions correspondent Norma Cohen broke the story about the SIB pensions review, the talk was of a compensation bill running into hundreds of millions of pounds, something I described at the time as “one of the biggest financial calamities to hit the City”.

How little we knew. By the time the final dribs and drabs were paid in the early to mid-Noughties the final cost, including the review itself and fines levied on those who delayed paying redress, topped £11bn.

Far more important than the compensation costs was the change in attitudes it engendered. If they had previously been sceptical about the merits of saving for retirement, many consumers now found there was increasingly little to choose between personal pensions and company schemes, where a corpulent Czech publisher could steal your money before falling off the back of his yacht.

The sense that you could never really trust a financial adviser or be bothered to save probably began in earnest in the mid-1990s. Every other misselling scandal since then, from with-profits endowments to payment protection insurance, has confirmed what we first learned in the aftermath of 1986.

It is because of that experience, massively underestimated at the time, that I predict the next big shake-up will once again involve pensions. Specifically, it will involve the Government’s liberalisation of the pensions regime to allow people to take cash out of their personal pensions.

What we seem to be seeing are two things happening in tandem. The first is that more and more people are making use of these new freedoms to extract money from their schemes.

Last week the FT reported that pension providers have paid out £2.5bn in 166,700 lump sums in the six months since April. In addition, a further £2.2bn was paid out via 606,000 income drawdown payments, according to the Association of British Insurers.

Meanwhile, Tom McPhail, Hargreaves Lansdown’s head of pensions research, has estimated the tax take for the Government so far is about £666m, more than double its original estimates.

Intriguingly, what the figures also indicate is that people taking their money out of pensions are clearly doing so on the basis of a calculation of some sort about what they can afford to free up and how much they should leave in their pension. The FT quoted an estimate by Just Retirement external affairs director Stephen Lowe to the effect that people are accessing about 48 per cent, a little under half, of their pension pots.

Precisely how they are figuring out that leaving the other 52 per cent of their money in a tax efficient pensions environment will provide them with the funds they need to meet their retirement needs 20 years down the line is anyone’s guess.

Which brings me to the second aspect of the tandem effect I referred to earlier: this mass withdrawal of cash is being carried out with little or no evidence of financial advice.

As Money Marketing has repeatedly indicated, take-up of even the incredibly limited form of ‘guidance’ on offer through Pension Wise is way under what many people assumed would happen. In turn, Citizens Advice is trying to retrain pensions advisers in other aspects of its work, although it strenuously denies suggestions it may want to redeploy staff.

What we are starting to see is a slow-motion drift into another chapter of a saga that began in the 1980s but will come to fruition in another 20 years’ time.

If both Money Marketing and I are both still around in some form or other, it will be interesting to speculate on which topic attendees at the 50th anniversary dinner will decide is the most important. My bet is still on pensions.

Nic Cicutti can be contacted at



Follow the money: Pension Wise row deepens after employee dismissal

A former financial adviser who became a Pension Wise guider as a career “swansong” has been sacked by a Citizens Advice branch following a row over how guidance staff are being used. The case shows issues uncovered by Money Marketing last month at another bureau have spread to other offices delivering face-to-face Pension Wise appointments. Shadow pensions […]


MM leader: The not-so-isolated case of Pension Wise failings

It is often very easy for organisations to hide behind the excuse that when something goes wrong, it was a one-off failure. To suggest anything else would be tantamount to admitting wrongdoing of epic and endemic proportions. Suffice to say, this is not companies’ preferred PR route. Sometimes though, stubbornly sticking to the mantra that […]


Why Pension Wise failure demands independent investigation

Last Friday Money Marketing pensions reporter Sam Brodbeck uncovered troubling failings at the Derbyshire Citizens Advice branch, one of the largest in the UK. The branch, like others across the country, has been receiving grants from the Treasury to deliver face-to-face Pension Wise guidance. The FCA has been instructed by the Treasury to raise £39.1m […]


Citizens Advice investigates rogue Pension Wise branch

A rogue Citizens Advice Bureau has funneled Treasury funds earmarked for Pension Wise into other services, Money Marketing can reveal. Bill Land resigned in July after his team of guidance staff were redeployed to activities unrelated to Pension Wise. Land, a former project manager at the Derbyshire Districts – one of the biggest Pension Wise […]

What's going on in the 'offshore' world?

Graeme Robb, Senior Technical Manager at Prudential, explores the current state of the nation for offshore issues and highlights areas which may be particularly relevant to advisers. In the context of insurance companies, ‘offshore’ can be a relatively straightforward matter. Like their onshore equivalent, offshore bonds are ‘non-qualifying’ for tax purposes, meaning that all gains […]


News and expert analysis straight to your inbox

Sign up


There are 7 comments at the moment, we would love to hear your opinion too.

  1. You are so right.
    And the tax take will increase, and the pensions advice gap is set to widen even more as advisers refuse to give advice and fearfully take shelter from the ill-qualified and inexperienced adjudicators in the FOS, who continue to retrospectively and subjectively interpret conflicting, unclear and unsuitable FCS and COBS rules to find in favour of complainants.
    And you can be certain with the emergence and proliferation of so called Claims Management Companies and Specialist legal firms, there will soom be a tsunami of disingenuous and meritless ‘complaints’ that advisers will be forced to defend at great cost.
    This in turn drives up the cost of PI premiums and leads to policy exclusions and excess that will very soon render the policy no more than an FCA compliance paper requirement. That is, if the PI market still exists at all.
    Bad FOS adjudications will lead to an increasing number of adviser firms failing and even more liability falling on the FSCS.

  2. Gosh haven’t many of us been saying (indeed shouting) the same thing. It is a relief to see a well-known commentator at last joining the other observers in shouting that ‘The King is in the altogether!’

    No.11 and the apparatchiks and bureaucrats will probably take no notice. Our erstwhile consumer pension champion has now taken the Kings shilling and now toes the party line. I also do not deny that the providers and many advisers are all for it, seeing the opportunity of making a quick buck. As you say plus ca change… we remember the transfer debacle! We need more journalistic outcries – it is perhaps the only way the public will take any notice.

    Thank you Nic for what I hope is the start of the rolling ball.

  3. It would be nice to think one could simply stand on the sidelines and avoid the flack that is yet to come. Sadly though I suspect the car crash that will be the FSCS, will take out many such innocent “bystanding” firms.

  4. Problem is that regardless of the number of warnings given it will be the fault of the industry when the pay out is spent and people do not have a pension.

  5. Unless I’m mistaken, a pension is still supposed to provide you with an income in retirement when you stop working, and unlocking your pension before you are due to retire to repay credit card debts and for your daughters extravagant wedding next year, is just wrong. There are other ways to refinance debt, and well, the wedding expenses really don’t have to be that high!

    Or have I missed something? Are pensions now simply bank accounts?

    Doesn’t it all sound lovely. Until of course those individuals get close to retirement, realise they have no money to live on, and decide to blame the silly government of the time and those horrible advisers for letting them do what they wanted to do.

    What a depressing reflection of human nature.

  6. Let us not forget that these new unfettered access provisions are government policy. The first waves of complaints from consumers seem to be from those whose plans to cash in their pension funds have been obstructed by:-

    1. providers insistent on proof of advice having been taken (to protect their own position),

    2. intermediaries not willing just to sign a piece of paper stating they’ve given advice when they haven’t (they’d be stupid to do so),

    3. intermediaries needing to charge at least £500 for proper advice (the conclusions of which in most cases is likely to be not to do it),

    4. the FOS refusing to accept as valid a signed disclaimer of responsibility on the part of the client (so intermediaries are naturally extremely wary of any involvement with insistent clients) and

    5. Anecdotally, virtually no public interest in guidance from Pensions Wise or the MAS.

    So who’s at fault here? Not providers or advisers. It’s:-

    1. the government (for having enacted the legislation in the first place),

    2. members of the public (for wanting to do something without thinking through the long term consequences and being unwilling or unable to pay for advice),

    3. the FOS (for refusing to accept as valid signed disclaimers) plus, of course,

    4. Predatory and unscrupulous CMC’s who frequently encourage and assist complainants to concoct a tissue of lies on which to base their claim for compensation.

    Yes, a scandal may well be looming but I don’t think it’ll be the fault of the industry. This time round, we’ll steer well clear. It’s full advice Mr Client or nothing.

  7. All of the previous and current scandals surrounding UK pensions was why Osbourne broke the Pension Industry’s stranglehold on people’s money. Now the Industry needs to up it’s game and offer value or lose the £billions they stick their snouts into, to pension freedom legislation.

Leave a comment