MSE News: Young people 'confused by pensions'

Pincher

What's there to understand? They promise you something, and then they go bust.

Who remembers Robert Maxwell and the Mirror Group?

Equitable Life: "Oops, we guaranteed these other members 13% annuities, which is why we will go bust if we don't steal from your policy."

The projection was based on 13% growth, that's why we have been taking 7% management fee, and still expect to have money left for your pension. It's not our fault that there's no money left.

We provide generous pensions to compensate for your low teacher salaries.

Public sector pensions are the greatest, because we just tax the people more. Or, in Greece's case, the Germans will pay for it.

CKhalvashi

I don't understand pensions and I'm 29.

My accountant sorts these sort of things for us, however it would be brilliant to find out more. This should be part of the compulsory FinEd programme that Martin wants to bring in!

CK

woolly_wombat

Equitable Life: "Oops, we guaranteed these other members 13% annuities, which is why we will go bust if we don't steal from your policy."

Been there done that, that's why I pay as much as I can into my local government pension scheme (LGPS) now!

dunstonh

I agree with your post, but the above surely misses the point that while some people do employ IFAs many more do not trust IFAs or the financial industry that they service.

Your view does not reflect reality. There have been a number of surveys over the last few years that show IFAs have not suffered reputation problems. Tied agents and sales reps have suffered but not not IFAs. Banks massively suffered. There will always be negative people. Typically they are negative against everything. There will always be issues and you cant expect perfection but thankfully, IFAs have managed to avoid most of the issues in recent times.

What's there to understand? They promise you something, and then they go bust.

Who remembers Robert Maxwell and the Mirror Group?

These historical issues were wrong but they did lead to changes which means they cannot be repeated. The last provider to offer GARs was 1995. The increased solvency requirements for insurers that were brought in improved the situation. We didnt see a pension provider suffer during the credit crunch. Occupational pensions cannot do a Maxwell due to legislation changes. For a young person, none of these things matter because its been 20-30 years since they have been an issue and do not apply today.

bigadaj

As you have stated previously IFA s seem to buck the trend, will this change when rates and fees are becoming more explicit rather than bundled in commission per cent ages. My impression is that £150-£200 per hour is just more than I'm prepared to pay generally for research you can do yourself.

Daniel_Elkington

bigadaj wrote: »

As you have stated previously IFA s seem to buck the trend, will this change when rates and fees are becoming more explicit rather than bundled in commission per cent ages. My impression is that £150-£200 per hour is just more than I'm prepared to pay generally for research you can do yourself.

I'm still charging %. 3% then capped at the fixed fee level.

I don't understand these reps that come around and tell me that smaller clients will go out the window as 'you are losing money doing pension transfers on 10K pots'.

Sorry, but £300 in the bank is better than 0 in the bank. It's not the £850 I'd like but...

Sorry, I'll leave the soap box to one side now.

Always join a company pension, whoever said opt out and pay the money into an SSISA is clearly mental.

If you take salary sacrifice then you end up paying net about £30 per £100 that goes into the pension (if the employer is doing matched contributions). I know no other investment which gives 200%+ instant return.

dunstonh

As you have stated previously IFA s seem to buck the trend, will this change when rates and fees are becoming more explicit rather than bundled in commission per cent ages. My impression is that £150-£200 per hour is just more than I'm prepared to pay generally for research you can do yourself.

I've been on agreed remuneration for around 7 years now and business has increased. In virtually all cases the charges are lower than commission and as they can still be collected via the product, the average consumer will be better off.

I rarely get anyone choosing the hourly option. Most choose either percentage based (with cap and collar) or fixed amount.

Remember that commission products havent largely existed for over 5 years now. The remuneration has been explicit but just called commission.

I don't understand these reps that come around and tell me that smaller clients will go out the window as 'you are losing money doing pension transfers on 10K pots'.

Sorry, but £300 in the bank is better than 0 in the bank. It's not the £850 I'd like but...

I largely agree with you. Except I set my minimum at £500 and small clients will not get offered a servicing proposition but equally they dont get charged any ongoing charges. Also the investments recommended will be based on no servicing.

So, I would be £500 on a £10k investment which is more than the typical 3% but the TER would be around 0.6%pa which would quickly see that person breakeven to typical pre RDR figures of around 1.6-2.6% p.a.

jamesd

Daniel_Elkington wrote: »

Always join a company pension, whoever said opt out and pay the money into an SSISA is clearly mental.

That'd be me, the person who corrected a number of outright errors in some of your past posts.

Whether it's worth being in the scheme depends on the individual and the scheme. My comments were specific to various individual situations like exceeding the lifetime allowance, or to a specific poor deal pension option, NEST, only for younger prospective members.

NEST gets that special treatment because unlike normal defined contribution pensions there is a combination of a complete ban on transferring out and a very limited set of investment options, along with charges that are higher than some competition and subject to further increases at any time. For someone of a suitable age that can make it better to forgo the employer addition and get the tax relief in later pension contributions with another employer or into a personal pension, where a better range of investments can be available. In the short term the pension balance is going to be lower, in the longer term the better investments can pay.

In general I agree with you that it's better to be in a pension scheme and accepting employer matching money, NEST is just a specific unusually poor case. In that case the better approach is to try to persuade the employer to use something else and enlist the help of the other employees.

Daniel_Elkington

NEST isn't that bad, they have some OK funds (compared to most stakeholders) and the charges aren't actually that bad as long as you are there for about 5 years. At least the fund options are mostly external fund mirrors.

Transfers out are banned for 7 years and will be reviewed (and probably allowed) then.

It does depend on the individual and the scheme, which is why blanket statements like "the new government initiative designed to solve the £65bn pension gap (designed after research by an independent enquiry) is generally rubbish"

People with protection or near the lifetime allowance are very rare to be frank and aren't going to be with the type of employer that is going to be looking at NEST, that's like telling a Yorkshireman to look out for alligators on his way to the shops.

It sounds like you've been reading the press and not the reality, you'd be whingeing more if they put up class 1 NICs by 3% on both sides, which would also solve the problem. At least they are giving us options.
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jamesd

Whether transfers out are ever going to be allowed is unknown. I'm not really inclined to speculate on what might happen seven years from now when it's NEST that gets to decide whether they want their customers to stay locked in or not. The first inclination will naturally be to keep them locked in. Companies that are trying to provide a good and competitive service don't need deals that lock their customers in until pension age or until the company decides to let them go.

I've been reading the Pensions Commission Reports and the products that NEST and some alternative products offer. Have you read the Reports of the Pensions Commission? How about a description of the offerings of NEST and NOW:Pensions so you can compare them, combined with direct questions to the providers? I have. What I write is based on the NEST product, its failure to deliver what was described in Lord Turner's Pensions Commission Reports and the alternative products available in the market. It's simply beaten by others and not worth accepting a lock in to it when there are other options available.

Try looking at it as an advice case. You can recommend any pension deal on the open market. How can you successfully make the case that NEST is the best option? If you want to constrain the comparison a lot, just compare to NOW:Pensions, which has a default and only combined fund with excellent reputation plus the ability to transfer out for those who find that fund unsuitable.

Now look ahead a little further and think of what auto-enrollment and low cost options may do to the pensions market, potentially driving down prices in general, just as Stakeholder Pensions did when they were introduced. That makes now a particularly poor time to accept a very long term lock in to one provider.

Sadly the lock in and rest of the package makes NEST a high risk product that is best avoided. I wish it wasn't because it's surely going to get a lot of business due to its high prominence. Fortunately employees don't have to just accept what their employer offers, they can try to do something about it.