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Gilts: risk-assessment complacency

Pension savers approaching retirement age lost 20% of their savings because pension providers moved their funds into Gilts and told them it was low-risk. This was mis-selling on a huge scale because it was based on interest rates never rising which demonstrates that risk- assessments were either not done or were performed by incompetent people. The 2022 losses were therefore entirely predictable. This scandal has simply bee swept under the carpet. I would like to somehow get Martin's attention and hope that his team would be prepared to investigate this and hold the pension providers to account for mis-selling. Do you agree?
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  • HappyHarry
    HappyHarry Posts: 1,737 Forumite
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    Pension savers approaching retirement age lost 20% of their savings because pension providers moved their funds into Gilts and told them it was low-risk. This was mis-selling on a huge scale because it was based on interest rates never rising which demonstrates that risk- assessments were either not done or were performed by incompetent people. The 2022 losses were therefore entirely predictable. This scandal has simply bee swept under the carpet. I would like to somehow get Martin's attention and hope that his team would be prepared to investigate this and hold the pension providers to account for mis-selling. Do you agree?
    I don’t agree.

    Pension funds that move into gilts in later years are designed to purchase annuities. As gilt prices fall, annuity rates rise. 

    This is low risk for the annuity buyer as they can purchase roughly the same annuity regardless of how the market moves.


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  • booneruk
    booneruk Posts: 591 Forumite
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    edited 30 August 2023 at 12:04PM
    I'm afraid I don't agree. If anything should happen after this, it should be the provision of extra encouragement to the population to regularly check on their pensions and ensure they're set up to meet their goals.

    There have been a lot of these posts lately. It is frustrating, I'm sure, but you would have been told that you were in the lifestyling option and would have had plenty of time to change this if you preferred to drawdown. 

    As the above poster said, gilt prices drop and annuity rates rise, so you won't be a loser if you're purchasing an annuity.
  • Without wanting to defend the pension industry who (together with various government agencies), I think, could and should have done a much better job of educating people about stocks and bonds since pension freedoms were introduced, I note that
    a) 'low risk' is not the same as 'no risk' and begs the question 'low' compared to what?
    b) Coming from an engineering/science background it took a while to understand that the term 'risk' was used in the finance industry in a different way from what I was used to, i.e. was a synonym for volatility. In which case, the answer to the question posed above, is low risk (volatility) compared to stocks.

    The fall of 20% in long duration bonds (shorter duration bond funds have not fallen as much) is unusual for bonds (perhaps last seen in the 1970s when bond yields also increased fairly rapidly). However, at the same time those 'lifestyle' funds for which it was expected an annuity would be purchased at retirement have seen purchasable incomes increase (at least for index linked annuities) since annuity rates have gone up more than typical long bond funds have gone down. Those expecting to go to drawdown should not have selected such a fund (and that is a matter of education - I note that at least some pensions now have such options labelled as 'drawdown' or 'annuity').

    What bonds do protect against is the sorts of stock market falls that have happened in the past (and will undoubtedly happen again in the future). For example, the drop of 70% in the FTSE30 (precursor to the FTSE100) from 1972-1974 was very nasty (see https://monevator.com/the-uks-worst-stock-market-crash-1972-1974/).


  • leosayer
    leosayer Posts: 544 Forumite
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    Do you have a specific example of mis-selling? Or negligence? Or incompetence? Making a loss in itself is not evidence of any of those things. 

    Who is your the complaint directed at? Fund managers, pension trustees, financial advisors? 

    Given the low interest rate environment lasted for over 10 years what do you think pension providers should have done differently? They're not in the business of making predictions.

    Sometimes investments make a loss over a particular period of time. It's an unavoidable part of investing and every pension provider will have loads of disclaimers pointing this out.

    The only realistic alternative to investing is to hold nothing but cash which will guarantee a long-term real-terms loss to inflation which is the last thing that any reasonable financial plan would do.
  • Nebulous2
    Nebulous2 Posts: 5,501 Forumite
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    Pension savers approaching retirement age lost 20% of their savings because pension providers moved their funds into Gilts and told them it was low-risk. This was mis-selling on a huge scale because it was based on interest rates never rising which demonstrates that risk- assessments were either not done or were performed by incompetent people. The 2022 losses were therefore entirely predictable. This scandal has simply bee swept under the carpet. I would like to somehow get Martin's attention and hope that his team would be prepared to investigate this and hold the pension providers to account for mis-selling. Do you agree?

    Many (most?) people pay little attention to their pension, which is astonishing to me, given that it is often their most valuable asset. 

    Pension providers as a rule don't provide financial advice or choose your funds. They moved people into Gilts as they approached retirement age, because the people asked them to. Pension savers could have chosen different funds, or could have turned 'lifestyling' off. 
  • Bostonerimus1
    Bostonerimus1 Posts: 1,147 Forumite
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    edited 30 August 2023 at 1:16PM
    I don't agree. The financial "experts" were just following standard practice backed up by historical markets and a 20% loss is not a rare event. People will have chosen to be moved into Gilts as some default option because it is retirement investing dogma and frankly who could have predicted world events or Liz Truss.

    Those people who were actively involved with their investments might have thought that at such low interest rates the only way for them to move was upwards and so reduced their exposure to Gilts, particularly long term ones. But there's been no mis-selling here, just a lot of sheep sticking their heads in the sand, sorry for the mixed metaphor, and the 20% loss is all part of the investing journey. Rather than running to the Ombudsman people should get a bit more involved with their money and look after it better. 

    Moving into supposedly low volatility Gilts is usually a precursor to buying an annuity and the good news is that annuity rates have risen to compensate for the loss in value of Gilts so you'll be able to buy a similar life time income as before interest rates increased with your lower Gilt balance. Or you could wait for your Gilts to recover so if you are in drawdown spend from cash and stocks and someone still working should probably be buying Gilts and rebalancing from their equity allocation. If you have a multi-asset fund like Vanguard Life Strategy that will happen automatically.
    And so we beat on, boats against the current, borne back ceaselessly into the past.
  • leosayer
    leosayer Posts: 544 Forumite
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    Those people who were actively involved with their investments might have thought that at such low interest rates the only way for them to move was upwards and so reduced their exposure to Gilts, particularly long term ones. 
    I did exactly that - stayed away from bonds altogether until very recently because the yields were so poor.

    It didn't look too clever when equity markets crashed 30%+ and bond prices increases in early 2020.
  • artyboy
    artyboy Posts: 1,375 Forumite
    1,000 Posts Second Anniversary Name Dropper
    edited 30 August 2023 at 2:57PM
    booneruk said:
    I'm afraid I don't agree. If anything should happen after this, it should be the provision of extra encouragement to the population to regularly check on their pensions and ensure they're set up to meet their goals.

    There have been a lot of these posts lately. It is frustrating, I'm sure, but you would have been told that you were in the lifestyling option and would have had plenty of time to change this if you preferred to drawdown. 

    As the above poster said, gilt prices drop and annuity rates rise, so you won't be a loser if you're purchasing an annuity.
    This is the key point. The OP's ire is misdirected because DC pension funds are invested as per the pension holder's instructions.

    The issue is that, especially with older people for whom Lifestyling may have taken place over the past few years, there is still a deep rooted and (frankly anachronistic) view that a pension is a guaranteed retirement income.

    Partly because we oldies still remember the good old days of DB pensions, and after that, the fact that you HAD to buy an annuity with a DC pension - it's important to remember that drawdown is a pretty new concept.

    Unfortunately, with those extra pension freedoms, come extra responsibilities - and these are on us, the pension holders, to ensure that we are invested appropriately.

    But yes, they are also - or should be - on both the pension companies and regulators, to shout very very loudly at us pension holders that investments strategies such as Lifestyling, may not be appropriate if we don't want an annuity. 

    This last bit is what is missing - and unfortunately it coincided with a 'once in a century' drop in gilt values. The impact to pensioners in future years that have been lifestyled, but are drawing down will be less dramatic, but incrementally significant in terms of reduced investment returns.

    Anyway, I do think there's a case for Martin to look at here, but it's more about the need to get the government to loudly educate the public that drawdown necessitates a different investment approach to what you'd go for with an annuity.
  • Bostonerimus1
    Bostonerimus1 Posts: 1,147 Forumite
    1,000 Posts First Anniversary Name Dropper
    edited 30 August 2023 at 9:18PM
    leosayer said:

    Those people who were actively involved with their investments might have thought that at such low interest rates the only way for them to move was upwards and so reduced their exposure to Gilts, particularly long term ones. 
    I did exactly that - stayed away from bonds altogether until very recently because the yields were so poor.

    It didn't look too clever when equity markets crashed 30%+ and bond prices increases in early 2020.
    You can always take a snapshot where things look terrible. Investing should be strategic and not tactical. I got largely out of bonds in 2014 and replaced them with a DB pension leaving most of my remaining pension pot in equites which were down 18% last year. But this year they are up 18% so swings and roundabouts.
    And so we beat on, boats against the current, borne back ceaselessly into the past.
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