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10 Nov 2019
by Ruston Smith

Retirement choices – influencing the lives we’ll lead

When you start the fun job of planning your summer holidays, you’ve travel agents on the high street to talk to and a load of online tools and websites to make your experience better, simpler and cheaper.


But when you start getting close to life’s longest holiday, your retirement, it’s a lot less clear which decisions you have to make and where you can get answers to questions that you can trust. 

And what about the employees who may work around you – whether they’re the receptionist that says hello every morning, machinists, engineers, shop workers, hair stylists, drivers…? As a society we find it hard to talk about the basics of money, never mind making financial decisions that will influence the quality of the rest of our lives.

People save for their retirement over most of their working lives and trust pension funds to invest their money wisely so they’ve a good nest egg and income when they eventually choose to slow down or stop working altogether.

Difficult choices

The freedom for employees to choose how they use their retirement savings is probably one of the most difficult decisions they will ever make.

The Pensions Advisory Service and Pension Wise are there to provide invaluable guidance, but can’t tell individuals what they should do and how they should invest their retirement savings.

When employees need more direct advice, finding a good IFA firm that provides advice they can really trust and is explained in everyday language is much more difficult. The British Steel employees found just out how difficult it was to their cost.

The cost of bad advice

Recent research from the FCA and others like XPS have identified a worrying trend of people being advised to opt out of good defined benefit schemes when perhaps they shouldn’t, and being put into expensive pension arrangements that are not necessarily the best for them.

The problem is that, like the British Steel employees, the vast majority have to find their own Independent Financial Advisor. Websites, like unbiased.co.uk, can help you find IFA firms that have been approved to give financial advice by the FCA – but that doesn’t guarantee that they will be great IFA firms or ones that are right for a particular workforce.

Philippa Hann, head of litigation at Clarke Willmott LLP, said “We are acting for hundreds of the British Steel Pension Scheme members who were negligently advised by financial advisers in relation to their pensions. Very valuable pension rights have been lost which could never have been the intention of the trustees of the scheme. If there had been better oversight of those advisers, in all likelihood, these members would have been better advised and the irrevocable damage suffered, reduced.”

Poor advice and choices can make the difference between a comfortable retirement and one very different to that – so this really matters.

Looking out for our people

Employers and their pension fund trustees spend lots of money to get the right advice on how their members’ pension should be invested, managed and administered when they are saving – but, in many cases, leave those members to fend for themselves when it’s time for them to choose how to invest and manage that money throughout their retirement.

A number of employers have considered appointing a trusted IFA firm or a panel for their employees to use so everyone can be confident that the advice and charges feel reasonable. As you’d expect, employers and trustees spend time checking out the IFA firm before they appoint them to make sure that it’s the right firm for their employees and members. 

Employers and trustees can then be much more comfortable that employees and members would pay competitive charges and get good advice.

What lies beneath

But one reason employers and trustees have been held back from doing the right thing for their people, is the risk that the firm they appoint doesn’t deliver and provide the service that was expected – with their people getting poor outcomes and the employer and trustee ending up with a possible litigation risk.

Francois Barker, head of pensions at Eversheds Sutherland believes that, “whilst some trustees may be worried about straying into an area they have traditionally avoided, this ignores the fact that they run a risk in turning away from the issue – just look at the fallout from British Steel. Trustees that do this in a properly governed way are probably less exposed than those who do nothing at all.”

IFA governance providers

A solution to this problem has recently been identified and is about to be offered by a number of credible companies, including some of the big four auditing firms. 

When an employer and/or a trustee board appoints an IFA firm or panel for their people to use, the employer or trustee can pay an annual fee for an independent organisation (such as an auditing firm) to carry out ongoing due diligence on the IFA firm they’ve appointed. They would then produce a quarterly report on the IFA’s performance. This could apply regardless of whether the advice is paid for by the employer or by the members themselves.

This proposition of independent ongoing due diligence has been developed based on learnings from the industry and, through a form of internal audit and sample checking, would include:

  • the financial position
  • changes in the FCA approval or structure of the firm
  • fines and reportings
  • changes in the people or culture
  • appropriateness of the advice – including the overall charges and structure of charges
  • clarity of the advice.

Margaret Snowdon, chair of PSIG and/or of the Incentive Exercises Monitoring Board, said: “The importance of good quality financial advice to help scheme members make complex pension choices cannot be underestimated. Too many people are harmed by bad or biased advice and trying to find a good ethical adviser is hugely difficult for a consumer. Trustees selecting a trusted and vetted adviser for the scheme is a good thing and supports both the Incentive Exercises Code and the DB Transfers Advice Code from the Pensions Advice Taskforce.” 

Like any provider service, good governance and reporting should be put in place to make sure that expectations are met and a good service is continuously provided – particularly when outcomes really affect people’s lives.

By offering a trusted advisor, overseen by robust independent governance, this should also help prevent those that use this service from the misery of being scammed – and losing their lifetime retirement savings.

This approach has the backing of former pensions minister Sir Steve Webb, now Director of Policy at Royal London. Webb commented: “Scheme members have many more options than in the past but may struggle to know where to find high quality impartial advice. If trustees can help members not only to access advice but also oversee the quality of ongoing advice, this should produce better outcomes all round.”

A better world

As more employers and trustees adopt this approach, building confidence in employees and members to get good advice at a reasonable price, it will mean ‘natural selection’ will lead to the promotion and growth of genuinely good IFA firms and hopefully the end of scammers and poorly run firms.

More importantly, it will mean those around you that have worked long and hard for your business, and who have saved for their retirement, will enjoy the lifestyle they deserve and have looked forward to – with peace of mind.  When retirement can be a third of our lives, surely this is one of the greatest contributions to our employees’ wellbeing we could make!

The author is Ruston Smith, Chair, Tesco Pension Fund, Tesco Pension Investment, Investment Committee of the BAE Pension Fund, Smart Pension Ltd, PTL and GroceryAid. Ruston is also a former chair of the Pensions and Lifetime Savings Association. He can be found on Twitter at @RustonSmith1.

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