Poor pension performance

Bostonerimus1

dunstonh said:

My gut is is that it was lifestyling risk reduction aimed at an annuity purchase.    However, the annuity purchase hasn't happened and its left the funds being wrong for the changed objective (pre-pension freedoms, almost certainly it would have gone to annuity)

I can see the idea behind a bond heavy portfolio going into retirement if the plan is to buy an annuity as any drop in bond values should be balanced by an increase in the annuity rate. However, lifestyling, particularly into long bonds, magnifies interest rate risk and sequence of returns risk which is very dangerous if drawdown is the plan. Interest rates were at historic lows for a long time and firms and people sticking with a bond lifestyling strategy if drawdown was contemplated just struct me as actually very risky and plain dumb. Unfortunately there will be many people in a similar situation to the OP and so their next steps regarding spending and drawdown asset management will be very important to their futures.

dunstonh

However, lifestyling, particularly into long bonds, magnifies interest rate risk and sequence of returns risk which is very dangerous if drawdown is the plan.

And that highlights the problem.  Many of these funds were set up with annuity purchase in mind.  So, 75% went into gilts as annuity rates do relatively the opposite and 25% went cash.

However, when the rules were changed, the investments were not changed to reflect the differences.

FOS complaints are beginning to appear from people who lost money by being in lifestyling risk reductions with no intention to buy an annuity and rejections seem to be order of the day.

https://www.ftadviser.com/pensions/2023/10/09/why-the-fos-rejected-complaints-about-aegon-s-retirement-fund/?page=1

Bostonerimus1

dunstonh said:

However, lifestyling, particularly into long bonds, magnifies interest rate risk and sequence of returns risk which is very dangerous if drawdown is the plan.

And that highlights the problem.  Many of these funds were set up with annuity purchase in mind.  So, 75% went into gilts as annuity rates do relatively the opposite and 25% went cash.

However, when the rules were changed, the investments were not changed to reflect the differences.

FOS complaints are beginning to appear from people who lost money by being in lifestyling risk reductions with no intention to buy an annuity and rejections seem to be order of the day.

https://www.ftadviser.com/pensions/2023/10/09/why-the-fos-rejected-complaints-about-aegon-s-retirement-fund/?page=1

There's a lot of "spilt milk" out there and the critical thing now is what people and advisors do to mitigate the damage.

Pat38493

dunstonh said:

However, lifestyling, particularly into long bonds, magnifies interest rate risk and sequence of returns risk which is very dangerous if drawdown is the plan.

And that highlights the problem.  Many of these funds were set up with annuity purchase in mind.  So, 75% went into gilts as annuity rates do relatively the opposite and 25% went cash.

However, when the rules were changed, the investments were not changed to reflect the differences.

FOS complaints are beginning to appear from people who lost money by being in lifestyling risk reductions with no intention to buy an annuity and rejections seem to be order of the day.

https://www.ftadviser.com/pensions/2023/10/09/why-the-fos-rejected-complaints-about-aegon-s-retirement-fund/?page=1

Question is - who if anyone can be held accountable for not moving those investments into a better solution when the rules were changed, in the majority of cases where the person did not have a financial adviser.  

I guess if it's an employer scheme, the provider will just say that the person was in the investments they chose.  

dunstonh

Question is - who if anyone can be held accountable for not moving those investments into a better solution when the rules were changed, in the majority of cases where the person did not have a financial adviser.  

Self-responsibility.

Ultimately, providers do not hold discretionary permissions.  They also do not hold advisory permissions.   Plus, they do not know anything about the intentions of the individual.   They are effectively order takers from the policyholder or the adviser.

Advisers employed to give ongoing advice have liability on the advice they give.  However where there is no ongoing advice being provided/paid for then they do not.   Transactional advice has to consider known rules and objectives.    It cannot predict how things will change in the future.

Bostonerimus1

Pat38493 said:

dunstonh said:

However, lifestyling, particularly into long bonds, magnifies interest rate risk and sequence of returns risk which is very dangerous if drawdown is the plan.

And that highlights the problem.  Many of these funds were set up with annuity purchase in mind.  So, 75% went into gilts as annuity rates do relatively the opposite and 25% went cash.

However, when the rules were changed, the investments were not changed to reflect the differences.

FOS complaints are beginning to appear from people who lost money by being in lifestyling risk reductions with no intention to buy an annuity and rejections seem to be order of the day.

https://www.ftadviser.com/pensions/2023/10/09/why-the-fos-rejected-complaints-about-aegon-s-retirement-fund/?page=1

Question is - who if anyone can be held accountable for not moving those investments into a better solution when the rules were changed, in the majority of cases where the person did not have a financial adviser.  

I guess if it's an employer scheme, the provider will just say that the person was in the investments they chose.  

I'm generally on the side of the consumer, but in the case of personal finances I come down strongly on the side of personal responsibility. If people can't be bothered to take care of maybe their largest financial asset then they are asking for trouble. I feel that there was not enough done to educate the public when pensions became more permissive, but that should not have prevented people from using a bit of common sense and doing a bit of research.

People will now have to take more responsibility and actually think about their money. Those that have lost money will have to change their expectations, look at their budgets and spending, maybe work more years or go back to work, consider annuities again and their asset allocations for what might be a 30 year drawdown.

artyboy

Bostonerimus1 said:

Pat38493 said:

dunstonh said:

However, lifestyling, particularly into long bonds, magnifies interest rate risk and sequence of returns risk which is very dangerous if drawdown is the plan.

And that highlights the problem.  Many of these funds were set up with annuity purchase in mind.  So, 75% went into gilts as annuity rates do relatively the opposite and 25% went cash.

However, when the rules were changed, the investments were not changed to reflect the differences.

FOS complaints are beginning to appear from people who lost money by being in lifestyling risk reductions with no intention to buy an annuity and rejections seem to be order of the day.

https://www.ftadviser.com/pensions/2023/10/09/why-the-fos-rejected-complaints-about-aegon-s-retirement-fund/?page=1

Question is - who if anyone can be held accountable for not moving those investments into a better solution when the rules were changed, in the majority of cases where the person did not have a financial adviser.  

I guess if it's an employer scheme, the provider will just say that the person was in the investments they chose.  

I'm generally on the side of the consumer, but in the case of personal finances I come down strongly on the side of personal responsibility. If people can't be bothered to take care of maybe their largest financial asset then they are asking for trouble. I feel that there was not enough done to educate the public when pensions became more permissive, but that should not have prevented people from using a bit of common sense and doing a bit of research.

People will now have to take more responsibility and actually think about their money. Those that have lost money will have to change their expectations, look at their budgets and spending, maybe work more years or go back to work, consider annuities again and their asset allocations for what might be a 30 year drawdown.

I'm generally with you here in terms of personal responsibility. There are a disconcerting number of threads started here along the lines of "my pension has dropped, why?" (generally with a "who can I blame" subtext), unfortunately there's still an entrenched view that "someone" is looking after their pension and they get a decent retirement out of it with no effort.

Now all that said, and I've said this before, I do think that when pension freedoms were first introduced, not enough was done by regulators and pension firms to educate people that because they didn't have to take an annuity any more, Lifestyling funds might not be a good option any more either. It should have been put out there in big red neon letters, but it wasn't.

Whether this crosses any threshold for accountability I don't know, and hindsight is of course 20:20. But considering just how deeply entrenched the view is that pensions are just something that manage themselves and then look after you in your dotage, I think an opportunity was missed.

Pat38493

artyboy said:

Bostonerimus1 said:

Pat38493 said:

dunstonh said:

However, lifestyling, particularly into long bonds, magnifies interest rate risk and sequence of returns risk which is very dangerous if drawdown is the plan.

And that highlights the problem.  Many of these funds were set up with annuity purchase in mind.  So, 75% went into gilts as annuity rates do relatively the opposite and 25% went cash.

However, when the rules were changed, the investments were not changed to reflect the differences.

FOS complaints are beginning to appear from people who lost money by being in lifestyling risk reductions with no intention to buy an annuity and rejections seem to be order of the day.

https://www.ftadviser.com/pensions/2023/10/09/why-the-fos-rejected-complaints-about-aegon-s-retirement-fund/?page=1

Question is - who if anyone can be held accountable for not moving those investments into a better solution when the rules were changed, in the majority of cases where the person did not have a financial adviser.  

I guess if it's an employer scheme, the provider will just say that the person was in the investments they chose.  

I'm generally on the side of the consumer, but in the case of personal finances I come down strongly on the side of personal responsibility. If people can't be bothered to take care of maybe their largest financial asset then they are asking for trouble. I feel that there was not enough done to educate the public when pensions became more permissive, but that should not have prevented people from using a bit of common sense and doing a bit of research.

People will now have to take more responsibility and actually think about their money. Those that have lost money will have to change their expectations, look at their budgets and spending, maybe work more years or go back to work, consider annuities again and their asset allocations for what might be a 30 year drawdown.

I'm generally with you here in terms of personal responsibility. There are a disconcerting number of threads started here along the lines of "my pension has dropped, why?" (generally with a "who can I blame" subtext), unfortunately there's still an entrenched view that "someone" is looking after their pension and they get a decent retirement out of it with no effort.

Now all that said, and I've said this before, I do think that when pension freedoms were first introduced, not enough was done by regulators and pension firms to educate people that because they didn't have to take an annuity any more, Lifestyling funds might not be a good option any more either. It should have been put out there in big red neon letters, but it wasn't.

Whether this crosses any threshold for accountability I don't know, and hindsight is of course 20:20. But considering just how deeply entrenched the view is that pensions are just something that manage themselves and then look after you in your dotage, I think an opportunity was missed.

Exactly but this is just one part - it's all very well to talk about personal responsibility and people should do it themselves.  However if I think about it, I am the very unusual type of person who was using a spreadsheet to manage my finances in about 1989 or so when I'll wager that the vast majority of people had never heard of one or knew what it was, and yet I was not really aware that I needed to proactively manage how my pensoin was invested until late 40s, early 50s or so.  Even then I certainly didn't have the knowledge to predict or manage the bond crash last year until it was too late - luckily I am in any case heavy in equities.  If someone like me is in that situation, what do I think the average person is like?

The reality is that the system is set up with this personal responsibility approach but it is not working, and in my view it simply will not work any time soon, as the general population does not have the maths or financial management skills, or the psychological maturity, to suddenly realise in their 20s or 30s that they need to be paying attention to pension investments.  The human brain is not programmed to prioritise what might happen in 30 years from now, and it takes a lot of targeted education to change that.

You can say that it's their own fault and so on, but with things like this, by the time they find out their mistake, it will be far too late to do anything about it.  Further, society will have to pick up the bill one way or the other either by safety nets, or by increased healthcare, enforcement, or encarceration costs.

Question - how many other countries say that it's the individual responsibility of each citizen to prepare and fund their own retirement and if they don't, tough for them?  Not many I don't think because they probably realised that it just won't work.

But your point is correct though - if IFAs and experts were clever enough to know to get out of bonds a year or two back, financial experts should have been clever enough to see that something needed to be done about informing people to get out of annuity based lifestyling when the pension freedoms were introduced.

Novice_investor101

ThomasJ said:

My funds are listed as:
Aviva pension cash FP about 40%, and Aviva pension pre-retirement fixed interest FP 60%

This almost certainly was in a Lifestyling strategy to move your funds into 25% cash & 75% Gilts upon reaching your nominated retirement date on the policy. This may have been age 60 or 65 for you. The funds are then left there until you decide what to do with them. 

Since your nominated retirement date the %’s will have deviated. Cash staying broadly level & Bonds have dropped sharply so out of the total value, cash now makes up a larger percentage. 

Lifestyling was usually the default investment option where no active fund choice was made by FA, Policyholder or Employer at the set up of the policy. This applied prior to Pension Freedoms & since about 2018 onwards a lot of workplace pension providers offer lifestyling for Drawdown as the default instead & you have to actively choose the Annuity option. 

It would have been up to the policyholder or their FA to change the investments, as DunstonH said. A lot of people at retirement age have been hit with this. 

Hopefully with Auto-Enrolment & people moving jobs more often (& the SP age moving further & further back) people are paying more attention to their pensions & understanding their own roles and responsibilities in their pension management. 

SouthCoastBoy

With dc pensions now being the vast majority of pensions in the private sector, there does seem to be a knowledge gap that needs to be closed. The number of conversations I have with people that have very little or no interest in their pension is disconcerting. The shift to dc has removed the responsibility to the employee. I imagine in 20 or so years it could be quite interesting.

For those in db obviously it is a totally different game.