Everyone who is engaged in providing the pension funds including fund managers has their role to play in servicing the pension fund industry poorly and for their own best interest. I am not talking about overconfident and bonus driven culture of fund management here. In fact, I am referring to managers with limited knowledge about their clients, un appropriately equipped to make investment decisions for their client and in some cases not qualified enough.
It is claimed that hundreds of pension schemes were misled by one of the biggest fund managements who is accused of giving “negligent” advice that cost about 100 pension schemes more than £300m.
The allegations made in the dossier were first reported in the Sunday Times.
Allegations
The allegations were made by an independent actuarial consultancy relating to advice given in 1999 and 2000 at the height of the stock market boom, at the time, one of the leading financial institution in UK takeover this fund management.
Then, the consultancy claims, the pension fund schemes were encouraged by the fund management company (actuaries) to give up appropriately invested plans, yielding returns of around 7 per cent a year in addition to guaranteed annuity rates. The schemes were advised to switch to their managed fund, a higher-risk investment vehicle with much more exposure to shares, and surrender their annuity rate guarantees.
A consequence of this was to transfer the risk of pensioners living longer away from the fund management’s balance sheet and onto the individual company pension plans. Since the switch, the fund has performed poorly and annuity rates have fallen to reflect lower interest rates and improved life expectancy: – a situation that has collectively cost the schemes about £300m.
As a result, the schemes are significantly less well funded, less solvent; and require a higher contribution rate from both employer and employee.
“Life assurance companies exist to assume risk but this is yet another example of a major brand simply abdicating its responsibility to its clients by shifting risk off its own books and onto the less powerful shoulders of clients,” said Arc director Roger MacNicol.
Therefore, it can be concluded that the advice to have been motivated by self-interest and not in the best interests of the pension funds.
If you have managed to escape any of the above scenarios discussed and believe your chosen personal pension will provide you with the comfortable retirement, you must think again.
Tomorrow I will talk about high Annual Management Charges (AMC) that may end up costing you almost 40 per cent of the value of pension fund over its life time.
Tags: Annual Management Charges, City Managers, higher-risk investment, Negligence, overconfident and bonus driven culture
