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Tom McPhail

Hargreaves Lansdown’s head of pensions research is chairman of the Pensions Income Choice Association, due to launch this week, which aims to shake up a retirement industry dogged by inertia and educate people to get the best deals on the market Interview by Helen Pow

Pensions Income Choice Association chairman Tom McPhail and his colleagues are poised to launch their manifesto this week, which they hope will turn the retirement market on its head.

Money Marketing revealed in July that McPhail had teamed up with MGM Advantage, Living Time, Partnership Assurance, LV= and Bluefin Group, as well as new recruit Aegon, to form Pica.

The group aims to ensure people nearing retirement understand the different options available to them and are able to exercise their right to shop around for the best rate.

At present, only 30-40 per cent of annuitants are using the open market option. The group wants to make this the rule rather than the exception.

Kicking off with a star-studded launch at the House of Lords, McPhail’s diary lists back-to-back meetings with the likes of Conservative Shadow pensions minister Nigel Waterson, the FSA and other stakeholders to begin influencing policy.

He and the group have already met unofficially with the Government, the Tories, the Association of British Insurers and consumer group Which? to sound out Pica’s proposals for change.

So what is the group proposing?

McPhail says tackling consumer inertia through communication is key. “There are various initiatives that have been chipping away at consumer inertia but progress has stalled. We are proposing simple developments to work with these initiatives, focusing specifically on communication.”

He adds: “There are lots of reasons why people accept the simple choice and remain with their pension provider, but we think some relatively minor adjustments to communication will make a difference.”

Raising the trivial commutation limit is also something Pica will lobby on.

Current rules allow people with a pot worth 1 per cent of the lifetime allowance or less – currently £17,500 – to take their pension savings as cash. However, 88 per cent of pension funds are valued at less than £50,000. A few years ago, 41 per cent of pension pots were less than £10,000. McPhail says there is definitely scope to take more investors out of the annuity process.

Pica is extremely supportive of the ABI’s Options’ initiative to speed up annuity transfers, although it is calling on providers to start using the new system in all cases.

But the manifesto’s main selling point, when it comes to politicians at least, will be an economic study Pica has commissioned from Oxford Economics, which conveniently uses the same modelling software as the Treasury.

“For the first time, it will give us an analysis of the fiscal and public policy implications of introducing greater efficiency into the retirement process.

“If you do the crude numbers, based on 500,000-plus people every year with average annuity purchases of £25,000, getting an average uplift of 10 per cent and some getting much more, then the expenditure flow out into the economy should be significant.”
The full economic analysis will be published next month.

McPhail is optimistic that things will change as a result of Pica’s hard work. “It would be positive for the Revenue, for the Department for Work and Pensions, for consumers and the industry if things change.

He adds that it should not be so easy for providers to make “a quick buck”. “It is necessary to challenge areas of the market where participants are making easy profits through inertia. We should have to work hard for our money and at the moment it is too easy for some players.

“We need to bear in mind that the pension and the annuity are two separate contracts. I do not have a problem if people stay with their pension provider, but it should not be the default.”

McPhail, who has revealed he will continue in the role of chairman until at least the end of the year, says if the group’s work does not make traction fast its members will not hang around.

“If we do not get a result in a matter of months, we will all question whether we will continue with Pica. It was never intended as a permanent fixture.”

McPhail has certainly earned his stripes as a pension expert, which makes him well placed to chair the group.

Having worked at Norwich Union for eight years – not flogging annuities, he insists – McPhail moved to National Mutual in 1994 to study all things pension-related.

“It was around 1994 when it became clear to me that the UK was heading for a pension crisis, so it seemed a good moment to reinvent myself as a pension expert. National Mutual was a great place to get that knowledge.”

In 1998, he moved to Wolverhampton and into the world of advice to develop Torquil Clark’s direct pension operation.

After four years, he moved on to Hargreaves Lansdown, where he has been ever since.

When he does not have his HL hat on, or his Pica hat for that matter, you can find McPhail running up mountains, swimming oceans or cycling for miles.

The McPhail household has 11 bikes and counting – he has a road bike, a fold-up bike for commuting and a mountain bike, his wife has four bikes and their four kids have one each. The family has plans to move as the garage is getting a little crowded.

If he succeeds in helping to transform the retirement market and millions more pensioners are bagging themselves better deals, McPhail might find a bit more time to use his wheels.

Born: 1966
Lives: Bristol
Education: Patchy
Career: Norwich Union, National Mutual, Torquil Clark, Hargreaves Lansdown
Likes: People – but not all at once, wide open spaces, getting better at things
Dislikes: Crowds, waste, getting stuck in the city
Drives: Brompton M type folding bicycle
Book: Currently reading Richard Dawkins
Film: In the Loop
Album: iPod set to dance mix for long runs
Career ambition: Work hard, have fun, be nice to people
Life ambition: See above
If I wasn’t doing this I would be…..Outside

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