Tom Kean: Prepare yourselves for the final salary time bomb

Tom Kean

Like most overly-opinionated people, there are times when my indignation is at risk of getting the better of me, so I must really try harder and not jump to such hasty conclusions. There is also a danger of being slightly negative about things when we should be striving to be positive at times like this.

But I am afraid I do not quite see the point in being all gushing and smug when there are things to achieve and important views to share in the vain hope someone at the top will notice. Like the painfully obvious train crash that is in full view of everyone at the moment. And I do not mean the EU.

So to which impending disaster do I refer? Well, take your pick really. Those of us at the coalface see things much more clearly than everyone else and the apparent reluctance by the FCA to truly listen frustrates us. It is also the speed at which things appear to happen. Like anyone actually acknowledging it is a problem that millions of households are steaming towards the end of their interest-only mortgages with no means of repaying the loan.

Or the way we ignore the white elephant in the room of master trust “regulation”, where we have a system in place that no one actually understands. FCA or The Pensions Regulator? They seem to me to be one and the same – or they should be.

Where is the sense in the FCA regulating group personal pensions and TPR “regulating” master trusts when both are trying to achieve the same thing? The consumer does not care who does it, as long as they are protected. But with master trusts, they are not. It is addled thinking on every level when what we need is crystal clear leadership.

But the specific crash I am referring to is the ticking time bomb of final salary transfers. Do not get me wrong, final salary transfers are currently – on paper at least – hugely appealing in the right circumstances. But that is the problem (and note my careful use of the word “currently”). I am old enough to have endured the fall-out of the pensions review where every single pension transfer, opt-out and non-joiner, whether the advice was good, bad or indifferent, was hauled over the coals and had to face the wrath of the then-regulator.

So let’s get this right. Go back 20 years and someone could have quite sensibly transferred away from a defined benefit scheme. Their shiny new pension fund then experienced the same reductions in long-term fortunes as everyone else (although some have done fantastically well) and, right or wrong, if they wanted to they could have been reinstated back into their old scheme.

Looking at it today, though, the very same member, staring at the stark differences between their boring-old final salary scheme and the new world of pension freedoms and all that lovely inheritability, can now, hokey cokey style, have their cake and transfer it.

What I fear is that give it another 10 years, a couple of changes in government and the usual merry-go-round of rule changes, and we will be back to where we started. That now tarnishing personal pension once again becomes a poisoned chalice – and not just for the member. Caveat venditor has never sounded so wise.

Tom Kean is director at Thameside Financial Planning