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Rob Reid: Being cynical of Govt has paid dividends

Rob Reid glasses 150

First, a history lesson. In 1988, we saw the introduction of the personal pension and a series of government adverts on TV featuring a man in chains being freed as a result of him personally contracting out.

At the outset it was clear that for those under forty five years old it was a no brainer. But, as with all things from the Government, the goalposts were soon on the move.

The pivotal ages continued to rise as the rebates fell and then regulators took an interest suggesting misselling as all personal pensions were clearly bad. ‘Misselling by whom?’ you might shout. ‘By those evil advisers!’, who else?

As amnesia took hold in Downing Street we had snapshots taken at a particular point in time given the credence of an accurate prediction of what would occur later, and found ourselves compensating before the loss has actually occurred.

When the future is not clear, neither is culpability. I always remember a pensions actuary taking me to task over a pensions calculator that I had designed, in the days when Inland Revenue limits were more than a set of ever decreasing numbers. He told me my answers were wrong. I agreed without hesitation, then I added, as are everyone’s when we make assumptions about some point in the future. We only know one thing and that is we are almost certainly not going to be absolutely correct.

In the words of Emmett Brown (the professor in the Back to the Future films), ‘the future’s not been written yet’. Perhaps we can best see the idiocy of snapshot determination of good or bad advice by using a case study. A keen advocate of contracting out via PPP, our client has put more than £65,000 into his plan. When it started it was fixed to state pension age and no tax free cash but all that changed and it has been very interesting to watch Serps simultaneously wither on the vine. Indeed the terms for S2P made it even better and now all those who did not contract out have lost the bulk of their Serps benefits.

So where the regulator/FOS forced providers to contract people in without their permission, will these providers now have to compensate? and what of the IFA who had allegedly missold, does he get to claw back the compensation?

This ridiculous concept that there is only one answer has finally been shown to be the regulatory equivalent of the emperor’s new clothes.

Taking all of this into account making a 25 year promise to those in local government is equally mad and will be rescinded in due course. The opportunity for another change of public benefits will come when their NI has to rise as contracting out disappears.

And this week, as the flat rate pension was promoted as the answer to our prayers we found out that if you do not retain your child benefit you will still need to apply for a nil payment child benefit to receive the credits towards your flat rate pension.

So, please apply for nothing and we will possibly give you something, unless the goalposts need to move again.

Before the Liberals cite Lloyd George as the father of state pensions let us remember that he had it payable from 70 when most died at 40. That is not benevolence, that is a confidence trick.

As someone who contracted out and ignored to calls to contract back in I am glad that I am a fully paid up cynic. It has paid dividends and not the taxable ones either.

Robert Reid is managing director of Syndaxi Chartered Financial Planners

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Comments

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

  1. Absolutely spot on, Rob!

  2. the world is grey, but those with the scoresheets treat it as black and white. bookies, actuaries, investment bankers and many others understand probabilities, optionality etc, the rule makers don’t.

    The concern i would have in their shoes would be that it is hard to believe the public trusting them over NEST when they have just done this.

    This is also tactically naive, for the very same reason

  3. Being cynical about the rules that Government devises for your life has been proven to be a very sensible approach, as this example demonstrates.

    Unfortunately, most people are ’employees’ and this tends to lead to a subservient mindset, which … leads to manipulation.

  4. The only time when measurement of performance (and calculation of any potential loss) should be calculated is at maturity/retirement. With hindsight the original Pensions Review re contracting out was for most premature, and now it seems, grossly inaccurate.
    But let’s not get ahead of ourselves, as for many of us the goalposts can still change several times in the years before we retire – the Government might well change their calculation basis again (and again and again) if they see those who contracted out having their cake and eating it!

  5. So compensation for ‘mis-sold’ contracting out would have been based on SERPS/S2P being around when someone retires.

    As this is no longer the case will advisers be able to reclaim any compensation paid – assuming they and their staff werent put out of business and jobs.

    Probably not – maybe there should be a class action against the powers that by by those who lost their jobs as a result of the contracting out reviews?

  6. Hi Rob

    I too have always been a huge Govt cynic and glad that I remained C/out via my PP.

    I never based my decision on pure mathematics of being C/out or not. That in my mind was a narrow foolish approach.

    Anyone who was automatically contracted back in by say an Insurance company and loses SERPS should claim compo.

    I always said to the mathematicians “it may be peanuts but at least when a rebate was paid into my PP it became my peanuts”

  7. Philip Spierling 25th January 2013 at 8:30 am

    Fantastic piece of writing Mr Reid ,

    It seems to becoming impossible to advise clients on pension planning due to the constant changes and tinkering by all governments..

    The sad thing is people will not realise they have just been short changed.

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