Pension Product Mis-Selling?

AMK123

Does anyone have any reflections/advice on the use of 'low risk' portfolios that major pension providers put many near-retirees into and which have now bombed badly?

I am 59 and retired early having burned out in my career but invested in a SIPP. I moved this to a draw-down which has dropped £40,000 in just over 12 months.

I used a financial advisor to move from a SIPP to an advised product with Royal London having done a full personal expenditure assessment and risk analysis.

I appreciate this is a market issue (thanks Liz Truss) - but there must be thousands of older'ish people who have experienced same. We accepted the advice as a lower risk recommendation - and paid for that advice in many cases. It would have been better to put my money under my mattress.

I can't easily ride this out as I am now having to draw down the pension pot - not looking good and my situation has gone from comfortable to concerned in a flash.

Would just appreciate any others views and to understand what if any guarantees there might be to 'stop' a catastrophe as in the bank guarantees?

dunstonh

Does anyone have any reflections/advice on the use of 'low risk' portfolios that major pension providers put many near-retirees into and which have now bombed badly?

Whilst gilts have dropped at levels for outside their norm (you have to go back over 100 years to see anything similar), their 10 year performance is still better than cash savings.  i.e. they went up and then they went down but still gave more than cash.

I appreciate this is a market issue (thanks Liz Truss)

Why are you blaming Liz Truss?     She is not responsible.   The issues of gilts go back to 2008 onwards.   The unwinding of the high gains they made was always going to happen at some point.   However, the expectation was that it would be a slow unwinding where yield would slowly increase whilst unit prices would fall.    Putin and the Bank of England are the two major causes. 

I appreciate this is a market issue (thanks Liz Truss) - but there must be thousands of older'ish people who have experienced same. We accepted the advice as a lower risk recommendation - and paid for that advice in many cases. It would have been better to put my money under my mattress.

In 2022, it would have been better under the mattress but what about all the years when its not?    

95% of the time, markets will act within expected volatility.  5% of the time they will not.     So, putting that another way, 95 years out of 100, you will see returns within expectation but 5 years out of 100 you will not.   Which would you put money on?

I can't easily ride this out as I am now having to draw down the pension pot - not looking good and my situation has gone from comfortable to concerned in a flash.

Its not all bad. Indeed, its cost neutral for many people as annuity rates have gone up by broadly similar rates what gilts have fallen (the two things are linked).     So, if you buy an annuity, you can effectively cancel out the losses due to gilts.

Would just appreciate any others views and to understand what if any guarantees there might be to 'stop' a catastrophe as in the bank guarantees?

The guarantee is to buy an annuity.     And its not a catastrophe.  It is a frustration that may result in people changing plans.  i.e. intention to use drawdown but the changes mean annuity is better.    Some people will ride it out as they do during any negative period and wait for the investment values to recover and use cash savings to fill the gap.

AMK123

I do not want to purchase annuity and never did.  My financial advisor was fully aware of this.  I recognise all that you say in your informed opinion - I expected the financial advisor whom I paid to walk me through this to make such issues and considerations clear.  A previous post suggested many 'sleeping at the wheel' - I agree.

Marcon

AMK123 said:

I do not want to purchase annuity and never did.  My financial advisor was fully aware of this.  I recognise all that you say in your informed opinion - I expected the financial advisor whom I paid to walk me through this to make such issues and considerations clear.  A previous post suggested many 'sleeping at the wheel' - I agree.

No adviser can reliably predict, let alone control, the markets - but many people posting here seem to think they can.

Look back at the written report your adviser will have provided and see what they've said. If you still feel they were asleep at the wheel, go back and complain.

dunstonh

I do not want to purchase annuity and never did. 

So, this money in the pension was only put in there after 2015?  (as before then, would have needed to buy an annuity)

My financial advisor was fully aware of this.  I recognise all that you say in your informed opinion - I expected the financial advisor whom I paid to walk me through this to make such issues and considerations clear.

Advisers will model scenarios that include losses of x% in the early years.  And the scale of losses in 2022 are high for gilts but you are unlikely to be 100% in gilts if you are using drawdown unless it happens to be that the yield is sufficient to cover your income need.  In which case, the unit price (value) is largely irrelevent.

If your adviser told you that your drawdown rate was sustainable when you started then it should still be so as the modelling advisers use takes into account negative periods happening at the start.      If the adviser said it wasn't sustainable or you were pushing limits  (such as giving you a success rate of 63% or requiring better than average returns - or worse) then you would know that the risk of running out of money was a possibility (or even a probability).

Drawdown comes with risk warnings that appear on your adviser documentation, the pension provider documentation and the fund house documentation.    The most common one is that the value of your investments can go down as well as up.      Key risk warnings are normally discussed and a periodic like 2022, whilst unpleasant, is still not that large for investments.      The sustainability of your income draw relative to your investment value is normally discussed.

For a mixed asset portfolio, the loss is similar to that seen in 2020.  Not much more than 2018 or 2015/16 and less than that seen in 2008 and 2000-2002.       If you have been invested for some time, then you will almost certainly seen similar or larger falls.

However, the bottom line is that if you do not accept the risk of using drawdown then you should use annuity.    You don't want to use annuity. So, that means you need to accept the risks of drawdown.

edit 16.05: missing word corrected

leosayer

You say the value has dropped by £40,000 in 12 months.

What is the % drop?

What fund(s) is it invested in?

AMK123

I feel that my advisor whom I contacted to move me out of a SIPP into a drawdown so that I could begin to access my money has merely done a standard albeit detailed and very convincing questionnaire review.  Based on my risk appetite - which was moderate - not at the highest level risk aversion - secured an investment option with Royal London as an off the shelf product offering.  The funds invested in were by a blue chip co - so must be good eh?   Yes, i'll trawl through my original report and information.  I'm looking at a drop of about 15%.  I accept market volatility and I accept the lack of a crystal ball - but it feels 'off' in terms of the options presented and the recommended option.  I have no doubt that the advisor will be covered to the hilt in disclaimers - but I paid well for independent personal financial advice.  I'll close my part of the post here as I feel this site is manned by hawkish IFAs and like and rather hoped it was more focused as a consumer champion site.  All points noted.  Many thanks.

dunstonh

Based on my risk appetite - which was moderate - not at the highest level risk aversion - secured an investment option with Royal London as an off the shelf product offering. 

As a moderate investor, your losses would be in line or lower with the typical expected loss that will occur periodically for a moderate investor.  Royal London is designed to be a simple off-the-shelf offering aimed at people for whom a simple off-the-shelf offering is suitable.

I'm looking at a drop of about 15%.  

So, actually, your loss of 15% would be at the lower end of the scale of what is possible for a moderate risk investor.  So, lower than other negative periods over the last 25 years.   Loss tolerance for moderate risk is around 20-25%.

 I accept market volatility and I accept the lack of a crystal ball - but it feels 'off' in terms of the options presented and the recommended option.

How does it feel off?

  I have no doubt that the advisor will be covered to the hilt in disclaimers - but I paid well for independent personal financial advice.

The problem is that nothing you have said so far indicates any wrongdoing or anything unusual or unsuitable.

 I'll close my part of the post here as I feel this site is manned by hawkish IFAs and like and rather hoped it was more focused as a consumer champion site.  All points noted.  Many thanks.

Ahh. So, you only wanted responses from people that agreed with you and were not interested in balanced and sensible responses.

If you cannot handle a negative period of 15% then you should not be using income drawdown and should buy an annuity.  You may not like that but it appears you do not have the risk profile, behaviour or understanding to use drawdown.   It would be interesting to know what you did in previous periods of losses around 15-25%.

Marcon

AMK123 said:

I feel that my advisor whom I contacted to move me out of a SIPP into a drawdown so that I could begin to access my money has merely done a standard albeit detailed and very convincing questionnaire review.  Based on my risk appetite - which was moderate - not at the highest level risk aversion - secured an investment option with Royal London as an off the shelf product offering.  The funds invested in were by a blue chip co - so must be good eh?   Yes, i'll trawl through my original report and information.  I'm looking at a drop of about 15%.  I accept market volatility and I accept the lack of a crystal ball - but it feels 'off' in terms of the options presented and the recommended option.  I have no doubt that the advisor will be covered to the hilt in disclaimers - but I paid well for independent personal financial advice.  I'll close my part of the post here as I feel this site is manned by hawkish IFAs and like and rather hoped it was more focused as a consumer champion site.  All points noted.  Many thanks.

You can only champion the consumer where they have a just cause - and from what you've said, there is no clear indication that's the case. A reality check, with the detailed explanation given by dunstonh, is of far greater value than simply oozing sympathy, however much one might sympathise (and I do).

Clive_Woody

AMK123 said:

I feel that my advisor whom I contacted to move me out of a SIPP into a drawdown so that I could begin to access my money has merely done a standard albeit detailed and very convincing questionnaire review.  Based on my risk appetite - which was moderate - not at the highest level risk aversion - secured an investment option with Royal London as an off the shelf product offering.  The funds invested in were by a blue chip co - so must be good eh?   Yes, i'll trawl through my original report and information.  I'm looking at a drop of about 15%.  I accept market volatility and I accept the lack of a crystal ball - but it feels 'off' in terms of the options presented and the recommended option.  I have no doubt that the advisor will be covered to the hilt in disclaimers - but I paid well for independent personal financial advice.  I'll close my part of the post here as I feel this site is manned by hawkish IFAs and like and rather hoped it was more focused as a consumer champion site.  All points noted.  Many thanks.

Not sure what kind of response you were hoping for, but pension funds go up and down, and come with an element of risk. There is no ability to seek compensation every time the market goes down. You say you accept market volitilty, but your posts on here contradict that.

FYI: I am not a "hawkish IFA".....I work in clinical trials but do my best to educate myself on financial matters.

Pat38493

AMK123 said:

I feel that my advisor whom I contacted to move me out of a SIPP into a drawdown so that I could begin to access my money has merely done a standard albeit detailed and very convincing questionnaire review.  Based on my risk appetite - which was moderate - not at the highest level risk aversion - secured an investment option with Royal London as an off the shelf product offering.  The funds invested in were by a blue chip co - so must be good eh?   Yes, i'll trawl through my original report and information.  I'm looking at a drop of about 15%.  I accept market volatility and I accept the lack of a crystal ball - but it feels 'off' in terms of the options presented and the recommended option.  I have no doubt that the advisor will be covered to the hilt in disclaimers - but I paid well for independent personal financial advice.  I'll close my part of the post here as I feel this site is manned by hawkish IFAs and like and rather hoped it was more focused as a consumer champion site.  All points noted.  Many thanks.

Just to add to the other points made, it's somewhat irrelevant whether your fund lost or gained 15% in a year when you are not going to take any money out of it.

What's important is the long term evolution of the fund and in relation to how and when you want to take the money out.  There is no particular reason to believe your fund will continue to incur large losses going forward.