Mergers - Who Really Benefits?

One of the things that intrigued me about the 20 year anniversary edition of Professional Pensions was the article by JonathanStapleton looking back at the names of the companies that were advertising in that very first issue.

Names that have now disappeared: Hill Samuel. GAN. Dibb Lupton Alsop. Kaupthing Singer & Friedlander. Capel-Cure Myers. Gartmore. Abbey Life. Hogg Robinson. Morgan Grenfell. Hewitt. Norwich Union.

All gone- and mainly forgotten in a plethora of mergers and takeovers over the years.

And now another one. Aberdeen and Standard Life are to merge.

I suspect the name Standard Life will survive. But then I thought that of Norwich Union before it gave way to the clinically globalised name Aviva.

Pensions Age Magazine quotes the marketing gobbledygook: ‘[the] merger would harness Standard Life and Aberdeen’s complementary, market leading investment and savings capabilities which would deliver a compelling and comprehensive product offering for clients covering developed and emerging market equities and fixed income, multi-asset, real estate and alternatives.’

They mention synergies. And surely there will be. In the way of job losses for the back-room functions mainly. But what about the investment managers- the individuals tasked with making the strategic decisions? Changes are not always welcomed to the people that do the work. They are used to a system, used to a style. When that style changes, so might their appreciation of the job they do. This in turn can affect returns for clients.

Synergies? Cost savings more like. And cost savings don’t always mean benefits for clients.

The Reason for Wrong Decisions

Well done to Darren Philp of People's Pension for the excellent presentation at this week's Pension Age Conference. He spoke on reasons people make the wrong decisions. So with some commentary of my own,  here's hoping I was listening properly:

1. Present Bias
This is simply the feeling that I can have the money now, take it out, use it, not save it.

2. Ostrich Effect
Head in the sand and the pension decisions may go away.

3. Optimism Bias
I really won't need to save that much as what I have will bring in loads of interest. Alternatively... I really won't need much in retirement...

4. Complexity Aversion Bias
Too much choice! What to do? Nothing.

5. Bandwagon Effect
What's everyone else doing? That must be right....

6. Confirmation Effect
Can someone please confirm what's best for me? Just tell me what to do!

The solution to these issues lies in clear communication at a simple level, good 'defaults' and a good deal of persistence from the employer/provider!

Osborne's Plan for Pension Poverty

George Osborne is in danger of single-handedly destroying the pensions industry.

First, the so called pension freedoms. I’m not sure his opposite numbers in the DWP knew it was coming. Definitely his initiative- and with unforeseen (or seen and discarded) consequences. By copying the Australian model, we are in danger of opening up the nation to ‘double dippers’ as Australia calls them. People that take their cash, miss-use it, or miss-calculate and end up dependent on the State to survive.

And now a consultation document considering scrapping tax relief on pensions. Throughout my 38 years in the pension industry, alongside company contributions, the one thing that ‘sells’ pensions to youngsters is the tax relief. If pensions get treated the same way as ISA’s, then ‘goodbye pensions’. The industry becomes a savings industry, and over time (with unforeseen consequences and/or an uncaring Government), people will find that they didn’t save enough and can’t live on what’s there in retirement.

Short term treasury gains are in danger of sending the next generation into retirement poverty.

Time Will Tell

"The pensions industry has had over a year to prepare for the changes- and it is encouraging some firms have risen to the challenge. But others seem to be failing to move with the times...."

So says our new Pensions Minister Ros Altmann.

It's all to do with time, not 'moving with the times'. Every provider want to move with the times in the sense of moving with the market. But a year is an incredibly small time to turnaround one of the biggest pension changes in a century. Better not to offer than to get it wrong, as, I fear, many will, either in product or pricing.

Well done to Friends Life for not cashing in cheaply, but in reviewing what is best, and the timescales needed to do so. It may be resources. It may be the merger with Aviva. But better not to go there than to offer the product and fail.

The Daily Mail sees it as a U turn. Maybe it's more like parking up in a layby and letting the market mature first.

David Cameron needs to be careful in warning of a crackdown on providers failing to offer the 'freedoms'. Time (again) will tell whether those that have rushed to market have got it right.

Ninth But Slipping

We’re ninth again. The same as last year. But for how long?

Mercer’s Worldwide Global Pension Index puts the UK behind Denmark, the Netherlands, Australia and Chile among others, but well ahead of France, Italy, China and India.

The warning is though that with the new reforms (the Taxation of Pensions Bill was published today), we will slip down the rankings. More freedom to take a pension in various forms comes with a health warning. If savers can’t manage those savings well and spend their pension pot before they die, then they fall back on the State. It’s happened in Australia (called ‘double dipping') and could happen here.

In the name of freedom, our rankings may fall.

So much depends on good communication and advice. Osborne is enjoying positive pension headlines today with the publishing of the Pensions Bill, but if the government don’t back it up with adequate education and advice, we’ll be slipping down that table.

Two Million Reasons to be Cheerful, One Country's Reason to be Careful

NEST has recently announced a landmark, as they passed one million members. Add to that approximately another million from other master trusts such as People’s Pension, NOW and L&G and you have two million reasons to be cheerful. Ian Dury and the Blockheads would be proud.

And it is a cheerful message. A majority of these members may well be new to pensions, thanks to Auto-Enrolment. Pensions that would not have existed had the legislation not changed.

A good start. But not enough.

Figures from Towers Watson Australia highlight the story over there:

 

So why is this relevant? The new announcements in the Budget means we are following the Australia example. Legislated savings but the ability to take cash at retirement.  So this means increased savings for sure, as the chart shows.  But not enough. Nowhere near enough.

And one other worrying slant on the Australia example. Double dipping. The ability to take cash and spend it has been too alluring to many. They spend it and then rely on the State to survive. Double dipping is more likely in the UK than a new Lamborghini. Or maybe it's both.

Failover or Fallover?

Another new word has just entered the pensions dictionary. Quoted in Pensions Age, Dixons Retail group pensions manager Gerry Phillips, talking of the new Profund Cloud service said “the automatic ‘failover’ capability within the service provides assurance to clients that service continuity will not be compromised”.

Failover? Does he mean the software security? Or is it a misprint and he’s talking about the new systems ability to ‘fallover’ at any moment?!

Google to the rescue on this one. Apparently it’s a technical term for a computer switching to a standby system if the first one fails.

So what happens when my failover fallsover? Good job I’ve got backup then….

Not so much a dogs life.....

Just had to check my calendar. No, it’s not April 1^st. So the headline in Pensions Age is genuine- the police are paying pensions to dogs!

It’s kind of funny, but sad at the same time. Up to £1,500 per dog, it’s actually a subsidy for the pet owners who take the dogs in at the end of the dogs police career.

At the risk of upsetting pet owners everywhere (and I was one until a couple of years ago- Wesley, our wonderful Chocolate Labrador), I can’t see how we can justify pensions for pets. I work in India alongside charity workers who get less than that a year. And amongst the poorest of the Dalit community who live on next to nothing.

Punter Southall are quoted in the article, saying ‘retired Nottinghamshire police dogs will be better provided for by their employers than many in our society’. It’s a strange world.