In this blog, Alex Waite looks at how decision makers aren’t always rational, including when it comes to decisions regarding pension Transfer Values (TVs).
December wouldn’t feel right without some nasty bugs going around. And this season has seen the return of an old favourite “Temporal Adjournment Syndrome” – or T.A.S. – and it’s catching! I’m sure you’ve seen it, but may not know its name.
TAS is a force of nature that leaves decision makers unable to see the long-term ramifications of their actions, particularly the downsides. The most notable symptom is benefits are taken immediately, whereas any bad news is deferred into the future.
There are several high profile pension examples in the news; including members taking inappropriate transfer values from final salary Schemes, and the WASPI campaign.
Taking a TV from a pension scheme is a tricky decision. You need to weigh up the short-term benefits, including taking control of a large investment pot, and some longer-term benefits, often potential inheritance tax gains, against the long-term risks. Due to TAS, the short-term benefits are most apparent. Both the eye-watering fee that will be paid for esoteric investment products, and the risk of running out of money, are overlooked.
However, this is where good advice comes in. In this case the advice is best provided by an unconflicted financial adviser. Unfortunately, there are still too many examples of pension scheme trustees and sponsors unwilling to enable such unconflicted advice, and the void is being filled by advisers carrying a heavy dose of TAS.
But this is nothing new. In 1995 the UK Government changed women’s pension age from 60 to 65 without individual communication at the time. The long-term ramifications should have been clear to the decision makers, but I fear this was a classic case of TAS, where the savings were banked by Treasury while the necessary political pain of explaining it to affected women was quietly left for some future government to worry about. Whatever the “rights and wrongs” of the WASPI Campaign today, it could have been averted a long time ago, had it not been for the impact of TAS.
Whilst TAS is currently rife, and spreading, it doesn’t mean that all decisions that take benefit now whilst increasing a risk for the future are necessarily wrong. As I recently explained to a room of 200 actuaries, I, for one, have recently taken a transfer value from a former DB pension scheme. I was fortunate enough to receive good, impartial advice that recommended I take the calculated risk of taking the transfer value. That advice was paid for by my former employer, with the blessing of the Scheme Trustees.
Keep your eyes open this season for examples of TAS, but don’t close your mind to people taking calculated risks on the back of good advice.