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Cap charges and cut intermediaries to fix pensions, MPs told

by William Robins on Nov 20, 2012 at 07:49

Cap charges and cut intermediaries to fix pensions, MPs told

Tougher regulation and a drastic cut to the number of intermediaries involved is needed to increase transparency and reduce the cost of pensions, a committee of MPs has been told.

Giving evidence to the Parliamentary Work and Pensions Select Committee, Michael Johnson, former Conservative party pensions adviser, and David Pitt-Watson, Hermes Focus Asset Management chairman, said charges needed to be clearer and lower in order for the pensions market to start functioning properly.

Johnson said the pensions system was ‘not fit for purpose’. He called for a ‘more assertive’ regulator and a cut in the number of ‘middle men’ involved in the pension market.

‘I don’t think competition works in financial services and the pensions industry because we have these chains of intermediaries which make it unclear what’s going on,’ he said.

‘What are these people doing? We don’t need 80% of this industry. We could do without most of the middle men. Few people come into financial services with the purpose of helping others.

He added: ‘The majority of people have very basic savings needs: a regular savings account and a vague retirement plan. So we have an enormously bloated industry, but there are piles of complexity and vague performance information.’

Pitt-Watson called for the restrictions on low cost workplace pensions provider the National Employment Savings Trust (Nest) to be lifted.

He also called on the government to press ahead with a cap on pension charges. While the pensions minister Steve Webb has threatened to impose a cap only if charges rose too high, Pitt-Watson questioned the government’s ability to understand charges at all.

‘They say they are keeping an eye on it…but if they already know what level of charges would count as abuse then why not just set the cap there? But they don’t even know what pension charges are; I don’t think the DWP could tell me.’

Johnson said the Open Market Option had ‘patently failed’ and called for a single central annuity clearing house.

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36 comments so far. Why not have your say?

jp via mobile

Nov 20, 2012 at 08:02

Wow to assert that 80% of the industry isn't needed is some statement, especially without analysis I hope they can back up the rhetoric or they will appear foolish.

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Mark Stokes

Nov 20, 2012 at 08:12

Sorry are they talking about National, County, Town and Parish Government/Councils. Oh and of course regulators!

That of course ignores think tanks, Quangos and lobbyists in general.

Deluded and without logical foundation.

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TheFuture

Nov 20, 2012 at 08:16

Can't say I disagree (except about NEST) evolve or disappear seems to be the zeitgeist

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Mike Gordon via mobile

Nov 20, 2012 at 08:17

What are these people doing? Trying to explain the ridiculous amount of rules and meddling by generations of politicians with no understanding of pensions. I will be doing this in return for a fee agreed with those clients who can afford and are willing to pay for that advice.

Those that cannot afford to pay for that advice will be completely disengaged from pensions, not because the pension charges are 1.5% instead of 0.0000015% but because of the politicians making it too complicated and the FDA making it so costly to advise.

Idiots the lot of them.

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Paul Barnard

Nov 20, 2012 at 08:17

I thought that we unnecessary parasites were being urged to help to explain NEST to businesses last week?

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W K Clark

Nov 20, 2012 at 08:20

I despair, I really do. Do these overpaid arrogant politicians unerstand nothing about human nature? In the mass market there is an inbuilt resisitanceto spending money on something they won't need for 30 years. I would suggest using possibly the same amount of research that 80% of people wouldn'thave a pension if it weren't for us in the industry.

If you want to guarantee a proper pension for all there is only one way and that is to put up NI enormously say 10% and pay everyone a flat livable State pension, but of course that would be politcal suicide.

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Robin Melley

Nov 20, 2012 at 08:29

What would be the effect of cutting regulation and increasing distribution!

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Chapman

Nov 20, 2012 at 08:38

I think they have already tried this one before wasn't is called stakeholder?

I would have thought that with adviser charging and increased transparency it will naturally place prssure on fund managers and providers to reduce charges?

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Lone Ranger via mobile

Nov 20, 2012 at 08:56

What on earth is this pompous fool talking about. I only hope his comments are taken out of context as this is a remarkable error of judgement. Particularly coming from these two! Wrong, wrong, wrong and wrong. Foolish, shortsighted and put of touch.

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Shane Barr

Nov 20, 2012 at 09:04

Piles of complexity i wonder who we have to blame for that, certainly not the "middle men" as he puts it. What an idiot.

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Richard Ellis

Nov 20, 2012 at 09:08

Wake up - pensions are not bought they are sold! Unless the system fundamentally changes and pensions are made compulsory (which no gov has the b*lls to do) then the public will remain disengaged. Removing access to advice even further will increase opt outs. Do people really not join a pension scheme because its too expensive?

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Irritable Vowels

Nov 20, 2012 at 09:11

I can understand the logic for the future. 80% does seem a bit punchy, though. What, in the meantime, do Michael Johnson and David Pitt-Watson propose for pensions people already have? Who helps those people understand what they have?

"Let's run an idea up the flagpole and see what the reaction is." Once that's done, those creating legislation will know what level of change is most comfortable for all. Seen it before and we'll see it again.

I must now unwittingly insert an obligitory spelling mistake and poor grammar to my comment. Their, done that.

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Anitaki

Nov 20, 2012 at 09:11

The usual suspects who blame Gordon Brown for everything that is wrong are noticeably quiet this a.m.

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Sascha K

Nov 20, 2012 at 09:15

"The majority of people have very basic savings needs: a regular savings account and a vague retirement plan."

I think we can all agree with that.

Client: Hi, I had some vague retirement plans and was wondering the best way to fulfil them.

Adviser: How vague are we talking here?

Client: Eh, *holds hands apart and waggles them a bit* dunno really.

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Nick H

Nov 20, 2012 at 09:16

"Few people come into financial services with the purpose of helping others".... But of course so many go into politics for that reason, dont they!!!

I was pretty offended at first, but theres no point dwelling on it. I've got a busy day ahead 'helping others' to understand and reach their financial goals....

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Jonathan Kirby

Nov 20, 2012 at 09:18

Feathering own nests comes to mind here.

This looks like an informal tender from a company that manages pensions.

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madmitch

Nov 20, 2012 at 09:20

Funny how we all turn on someone wo is clearly thinking the unthinkable as far as our community is concerned.

I tend to agree with some of his thinking, we as an industry have not been totally blameless when we look at our contribution to the pension industry as it is today.

80% of the population dont really require complex pensions advice, many need to be sold to, or persuaded that their need is real and urgent, eventually some form of compulsion may be introduced to ensure that people do make some form of provision. Capping charges and cutting middle men out of the process will simply be part of the preperation for compulsion.

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Paul Barnard

Nov 20, 2012 at 09:21

Does anyone have access to the data on the number of pensions sold/bought, call it what you will, pre and post SHP were introduced? Surely the industry keeps tabs on these things?

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Julian Stevens

Nov 20, 2012 at 09:30

Having recognised that the main reason people have been poisoned against the very idea of locking away money in a pension plan is 25 years of ill-informed and destructive meddling with the rules, the Conservative party, in its pre-election manifesto, promised to:-

1. sweep away all the complexity,

2. bring about true simplification and

3. "reignite the UK savings culture".

There's also the not insiderable deterrent of the annuity rates trap at retirement.

Yet, according to this former Conservative party pensions adviser, it's all the fault of greedy and unnecessary middle men and everything can be solved by the government quietly sweeping its pre-election manifesto promises under the carpet, removing 80% of the advisory population and winding back the clock 10 years to the failed stakeholder experiment. Either he's very stupid or very mendacious. Still, I suppose such statements accord with the FSA's prejudicial agenda against small IFA's.

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Confused

Nov 20, 2012 at 09:30

Right, so I assume he will be up for getting rid of some political middlemen?

We have 650 MPs in this country, but now that half the laws are made in Brussels presumably no one will mind cutting out 325 of them?

Not quite the 80% that is needed to make the system more efficient and cheaper to run - but it is a start!!!

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Chartered Mark

Nov 20, 2012 at 09:47

@ Chapman

Spot on re Stakeholder.

The problem with this sort of article is that the data used to push the agenda is always tilted in favour of the interest group spouting it. It is always the usual suspects. There is usually some politician, or ex politician, who is getting some "fee" to use their influence to aid the interest groups agenda.

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Michael Brown

Nov 20, 2012 at 09:54

Thought that with RDR 80% of middlemen - us - would be leaving so whats the problem?

Opps I forgot pensions are sold and not bought so the hole will get bigger and bigger. But do not worry my MP pension is very good!"

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Charles Rickards

Nov 20, 2012 at 09:54

Charges are used again as the reason for poor performance, rubbish.

Quick calculation shows the difference between a plan at 1.5% and 0% amc with contributions of £100 per month gross over 30 years at a growth of 5% Per year is £19,383. Does the inclusion of an adviser give the client a better chance of achieving a better return?

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Adrian Kidd

Nov 20, 2012 at 09:55

The arguement as always in politics is at odds with itself - Stakeholder promised much but failed to match the expectation - advice is needed, people simply do not know enough or are interested in this enough and they need constant nudging - that is what we do !

MPs are a complete waste of time and have an agenda on every subject, all they do is make things worse currently - and they have as much responsibility for the financial crisis as bankers do

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Tim Page

Nov 20, 2012 at 10:06

@ Anitaki: It's all Gordon Brown's fault! (Happy now)?

However nuts all the this is and however loud advisers shout that it's been tried and failed before - we all know that no one is listening to the advisers on this. Us advisers are all lumped in with the bankers as the bad guys.

(Think about drawdown - it's only when the Dail Mail readers get angry that government thinks about doing something - even though advisers have been telling them till they are blue in the face).

So how do advisers deal with this and protect their businesses in the future?

It has seemed to me for a couple of years know that the %AUM busienss model will become increasingly compromised.

So you can either go up market and search other markets (e.g. trustee investments), or you can insulate your business by charging more direct fees.

The latter approach is certainly a harder "sell" but is it the most sustainable?

Answers on a post card please.

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Andrew Carter

Nov 20, 2012 at 10:22

There can never be an effective cap on charges unless you can cap the portfolio turnover rate for pension funds.

Do these geniuses now propose to legislate for maximum turnover rates and do the fund managers' jobs for them?

As for the motives of those working in financial services, I would bet my back teeth that these two draw far more salary than the average financial adviser. In my experience it is rare to meet a politician who works pro bono!

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Anitaki

Nov 20, 2012 at 10:23

@ Julian

He correctly said, "3. "reignite the UK savings culture".", but that cannot happen until you get rid of "the UK borrowing culture", (created by the big bank and lending institutions), and that has now morphed into the "borrow without the need ever to pay it back" culture.

Julian is absolutely right, but it is proving quite difficult to stop a steamroller running downhill without a driver. For years there was no driver. The BoE should have stopped it 10 years ago, but then, it was in their interests not to.

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Paul Barnard

Nov 20, 2012 at 10:24

I have found a link to the take up or otherwise of pensions by the self employed, covering the period before and after SHPs were introduced, which shows the numbers falling

http://www.ons.gov.uk/ons/rel/pensions/pension-trends/chapter-7--private-pension-scheme-membership/index.html

As those of us in the industry know, pensions have to be sold and disincentivising the intermediary market depressed sales. The ONS stats back this up. So now we have more clowns telling us the opposite of what the industry knows and the ONS has recorded.

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Well Now

Nov 20, 2012 at 10:25

Another one that has not learned the lessons of Stakeholder Pensions.!

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PensionMan

Nov 20, 2012 at 11:02

"Few people come into financial services with the purpose of helping others. "

This coming from a guy who spent 20 odd years as an investment banker??

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Graham M

Nov 20, 2012 at 11:46

The government need to be clear on their objectives. If they want people to save for their future, and therefore relieve the government of financial responsibility, then they should do it properly.

Imagine having pension savings as a key objective and admitting that people "only have a vague retirement plan"...!

The government could focus on pensions, rather like the Australian Superannuation model (http://en.wikipedia.org/wiki/Superannuation_in_Australia). Forget about tax incentivised savings elsewhere (ISA, EIS, VCT etc.), do one thing properly.

We could sweep away so much clutter from the client's mind and help people to invest in a way that is understandable and divorced from trying to get one over on the tax man.

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Enjoyer of early retirement

Nov 20, 2012 at 16:03

How about a larger State pension, funded by the removal of 80% of the Public Sector workforce including MPs? Could even stop the revolution.

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arnold blood

Nov 20, 2012 at 17:33

Guy Fawkes did have a point

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Jimmy via mobile

Nov 20, 2012 at 21:06

What a load of crap no other way to say it

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TheFuture

Nov 21, 2012 at 07:24

Good to go against the flow. I am a big fan of Michael Johnson and believe that he talks a lot of sense. His papers are well worth reading and the key themes that are being brought out here are that the only trusted savings brand oin the high street is the ISA and that there are too many snouts in the trough delivering poor value to the end user, the cumulative effect of a series of charges is no longer being hidden by strong investment performance so pensions et al look bad value and are avoided. MJ has the ear of Government and given our pretty poor savings ratio he is suggesting that radical reform is required to reinvigorate savings which in turn aids economic growth. His challenge, and I believe it is fair, is deliver a reformed and simplified model that will engage, build trust and ne bought not sold. Sweep away the complexity that has meant expensive distribution structures are a neccessary norm and get people on-board and saving for a future that candidly looks bleak without a new direction. If adopted, there will be casualties, I am likely to be one, but, this is needed and overdue and I would suspect that it will happen by imposition unless a provider is smart enough to respond. To misquote "Nest is the cuckoo".

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phil via mobile

Nov 24, 2012 at 16:28

Time and again our elected reps have shown just How out of touch they are When it comes to financial services. But then again there are Plenty of folk who think ifas Should Work for free. Its all part of the same debate

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