Is it possible to feel entirely contradictory emotions about individuals or organisations in terms of what they are and the underlying point they are making? I found myself facing that dilemma twice last week, courtesy of a set of tweets from Financial Times pensions correspondent Josephine Cumbo. I hasten to add that the tweets themselves were not the issue.
The first tweet related to an article in the Daily Telegraph written by Boris Johnson almost five years ago.
As we know, Johnson is standing for election to become leader of the Conservatives. In my biased opinion he is a buffoon and unfit to be the UK’s next prime minister. Yet Cumbo’s tweet contained a link to said column, in which Johnson called for the UK’s public-sector pension schemes to be pooled into one gigantic fund, with the money used to pay for roads and housebuilding.
Johnson reckoned a merger of the 39,000-odd public-sector funds in existence in the UK could yield savings of up to £5bn a year in fund management and advisory fees. Cumbo quoted Johnson as saying, in his inimitable style: “Think of all those advisers and investment managers taking their fees – their little jaws wrapped blissfully around the giant polymammous udder of the state. Think of the duplication.”
Now, before someone writes in to tell me that the UK’s public-sector pension ecosystem is infinitely more complicated than Johnson lets on, yes, that is true.
And I am not sure either that millions of existing and past public-sector workers’ retirement pots should be used to subsidise infrastructure projects where the money can’t be found by more conventional means, such as taxation.
But, at the same time, there is massive resource duplication in the public-sector pensions system and rationalisation is well overdue, as well as bringing in some proper oversight of how scheme members’ money is invested.
Or, at least, that’s one interpretation of the haphazard way many local authority pension funds, including Derbyshire, West Yorkshire and Dyfed in Wales, sank tens of millions of pounds of their members’ hard-earned cash into Neil Woodford’s Patient Capital Trust Fund. A bit more scrutiny of what Woodford was up to in terms of his many illiquid investments probably wouldn’t have hurt.So here we have it: a complete nincompoop says something that vaguely makes sense.
I felt similarly conflicted by another tweet from Cumbo a few days earlier, related to an article she co-wrote about the FCA’s survey of defined benefit pension transfers between April 2015 and September 2018. The regulator surveyed 3,000 firms, of which 1,450 advised 70 per cent or more of their clients to transfer their funds out of DB schemes to defined contribution schemes.
The FCA has long argued that the majority of DB pension scheme members were better off staying put. Their pensions pay out secure, index-linked retirement income for life, as well as other benefits to spouses and other beneficiaries. Yet the regulator’s survey found that, during the period in question, of the 234,000 scheme members who received transfer advice, 162,000 went on to switch their pensions to DC arrangements. The total value of DB pensions where transfer advice was provided was around £83bn.
Cumbo’s article quoted FCA executive director of supervision, wholesale and specialists Megan Butler as saying: “It is deeply concerning and disappointing to see that transfers are still being recommended at the levels we have seen.”
She was right, of course. Except that what wasn’t reported quite as widely by my colleagues in the UK media was the accompanying information in the FCA press release to the effect that half the number of firms in the survey kept records of triaged transfer requests.
As a result of initial triaging, almost 60,000 clients did not get as far as proceeding to advice. When these triaged clients are included, the proportion of clients who were recommended to transfer falls from a widely reported 70 per cent to 55 per cent. That’s still an incredibly high number. But the chances are also high that many more prospective clients were triaged out of the DB transfer pathway without records being kept of the process.
I’m uncomfortable with this lack of recording as it is likely many clients will have bounced around the advice market like pinballs until they found someone willing to indulge their request for a transfer. But I’m also uncomfortable with the way the FCA has released incomplete statistics to prove its point. Ideally, I’d have liked to see a quarterly breakdown of the DB transfer figures, to assess whether they showed an improvement in the quality of the advice given over time.
I would have liked figures showing the extent to which some firms were more or less exposed to transfer business. That would have given us an indication of the extent to which this issue applied across the advice industry. As it is, we are left with statistics that beg as many questions as they answer; where easy headlines are seen as a substitute for concerted action to stop the DB pension transfer scandal. Or is the FCA closing the stable door after the horse has bolted?
Nic Cicutti can be contacted at firstname.lastname@example.org