Rowanmoor Group managing director Ian Hammond chalked up 50 years in pensions this month and probably deserves a medal – or at least some form of acknowledgement for having digested so many changes over the years, including the recent Budget announcements and simplification that seems to have made things more complicated.
Even with half a century of pensions wisdom, Hammond is as frustrated as the rest of the industry that the sector has grown so complicated. “All the Government is doing is allowing money to grow tax-free and be drawn as income for life,” he says. “The problem is, nobody knows how long ‘life’ is.”
When 16-year-old Hammond was getting his first taste of life in financial services, many companies did not have pension schemes. Those that did had old-fashioned arrangements that were making way for defined benefit schemes.
Fifty years on and DB schemes are in decline while the Government is busy realising its flexible future for defined contribution schemes.
Hammond says the complexity in pensions comes from the involvement of politicians, who inevitably get involved in anything that offers tax relief.
“Tax relief makes it political, allowing the Government to play with it. If you don’t have tax relief, you don’t have that,” he says.
“There’s been the odd few years where we haven’t had much political involvement in pensions but particularly over the past few years it’s been never-ending.
“The Government keeps planning what it’s going to do and what it’s going to change but, by the time you reap the benefits, the rules have changed.”
Hammond regards today’s pensions as over-regulated and over-political. He is critical of the new capital adequacy requirements for Sipp providers.
“You have to have a huge amount of money sitting in a bank account. Why? It will put a lot of capital out of capability for business development,” he says.
He also expects a lot of people to take money out of pensions under the planned reforms.
“I don’t care what George Osborne says, I’m convinced a lot of people will draw their pension as soon as they can,” he says.
“If you have £15,000 a year to live on and a pension paying out a lump sum of £40,000, it could be too tempting. Some people would never have seen a cheque for that amount. It’s human nature to think ‘I can get my hands on it now rather than struggle for the rest of my life.’”
Hammond believes bigger pots will remain as big pots.
“But drawdown will serve people who don’t have a lot and won’t understand the tax implications of taking their money out. Some of them will be subject to a 40 per cent tax rate,” he says.
The Rowanmoor boss is also unimpressed by the implications for advice in the new era of pension freedoms.
“We thought there would be more demand for IFA advice but the Chancellor’s speech talked of individual guidance. If everyone has got the right to free independent guidance, will people want to pay for sophisticated financial advice from advisers?”
The Government’s decision to mandate regulated advice for transfers out of DB schemes to DC schemes for pension pots of at least £30,000 concerns Hammond.
He acknowledges there are circumstances where it makes sense to transfer from a DB to a DC scheme – for example, where a DB scheme offers dependants’ benefit but the member has no dependants and would prefer to take the money out under the new rules.
But Hammond says this is a different kind of reasoning from the current criteria for transfers, where advisers look at matching the yield in percentage terms to client expectations.
“Under the new rules, people will be looking to move to DC for different reasons. They can’t get their hands on their funds if they have a DB scheme so it becomes a lifestyle issue rather than a yield issue,” he says.
Hammond’s view is not surprising given his actuarial background. Aged 16, he was unsure of what career he wanted to pursue when his father returned from a business event with an offer of work experience from Geoffrey Heywood, senior partner at consulting actuaries Duncan Fraser. So Hammond set out to become an actuary.
He soon learned that treating people with respect fostered loyalty. “I knew it was just as important to deal with junior members of staff as it was sucking up to superiors,” he says. “The important people were the telephonists and the typing pool. I decided if at 4pm on a Friday I could chat to the typist, I could get that last-minute letter sent out.”
After 10 years with Duncan Fraser, Hammond moved to UK Provident. Getting this job proved the highlight of his career, he says, because it was the only role for which he had to apply and undergo an interview.
As a pensions actuary, Hammond typically met IFAs, which was unusual in the late 1970s.
“Most IFAs had never seen an actuary – we were meant to be stuck in a cupboard and never allowed out,” he jokes.
Hammond spent 12 years at UK Provident before leaving to join James Hay Pension Trustees.
“I could see my career was starting to stall at UK Provident,” he says. “I was 10 years younger than everyone else on the executive committee but they all had 10 years to go until retirement, so I was going nowhere.”
At the time, Hammond was providing pensioner trusteeship to a few of his private clients and this paved the way for his move to James Hay. In 2006, he led a management buyout of James Hay Pension Trustees’ SSAS business. This became Rowanmoor, named after the company’s Salisbury premises, Rowanmoor House.
So what next for Hammond?
“To continue to expand Rowanmoor,” he says.
“We want to become a bigger player and more profitable. Our immediate plans are to meet the capital adequacy requirements of the FCA and grow organically.”
What’s the best bit of advice you’ve received in your career?
We had a speech at school by a retired sea captain. He’d been in the war, he had no legs and he told funny stories. But then he was serious and said “Cultivate courage” – before going back to his jokes. I remember it to this day. You think “Don’t go down” when things get difficult.
What keeps you awake at night?
What has had the most significant impact on financial advice in the past year?
Capital adequacy requirements and the FCA’s clampdown on advising on non-standard investments.
If I was put in charge of the FCA for a day I would…
Resign by lunchtime.
Any advice for new advisers joining the industry?
2006-present: Managing director, Rowanmoor Pensions
1986-2006: Managing director, James Hay Pension Trustees
1974-86: Pensions actuary and deputy general manager, UK Provident
1964-74: Actuarial student and actuary, Duncan Fraser