As the pensions blame culture builds momentum we can see signs that one person’s freedom will inevitably become another’s liabilities. Whatever automation is put in place, life changes. Fading memories, by age or by design, will mean “safe” and “drawdown” are not an easy pairing.
If you ever attend a financial planning conference in the States, there will be at least three sessions on the topic of “safe withdrawal rates”. To date, all the focus seems to centre on inception of drawdown, where, in reality, the quest to evidence suitability never eases up.
One area where insistent customers are a key issue is in pension transfers from final salary schemes. I recently saw a report from a pension transfer specialist that ran to 78 pages. If those using such a report expect it to protect them, I have some news: it will not.
Transfer value analysis reports have grown over the years, not in clarity but in quantum. They are now in a format that is unintelligible and unfit for purpose. Given the critical yield is no longer the key fact and some objectives are mutually exclusive, there needs to be a revolution in suitability reports if we are to avoid getting into a total mess.
But the big problem for me when it comes to insistent clients is charging them for the implementation of an action we have just told them is not smart in their circumstances. I cannot see how you can charge an ad valorem fee? Surely, all you can do is delegate it to an administrator and charge for it on a time-costs basis.
When Ron Sandler reviewed the sector over 10 years ago, he took issue with the way in which advice was bundled with product charges, making costs higher, rather than reducing them through competition.
As many recent reports have highlighted, high fees are still an issue today. But that does not mean I am advocating fixed fees – far from it. There needs to be some recognition of complexity and risk in charges.
In addition, as the regulator and professional indemnity insurers use ad valorem, they too need to review their charging methodology if change is to happen anytime soon. We cannot have advice firms on fixed fees and everyone else charging on an ad valorem basis. That is simply unworkable.
Money Marketing recently reported some advisers are charging clients their PI excess. However, I would suggest that is tantamount to encouraging a claim and could prove fatal when the PI insurers find out.
As for the Government’s stance, I remain confused. One minute it is on the attack over the new state pension arrangements and the next it is admitting it has been less than clear. And what about the success of Pension Wise?
Pensions minister Ros Altmann is already placing the blame at the door of providers. Any day now the Government can be expected to backtrack when it realises it is totally isolated yet again but do not expect it to shoulder any blame.
Robert Reid is director of The Ideas Lab