Illustrating The Problem

Illustrating the problem [Andrew Roberts]

I kickstarted a debate about SIPP illustrations when a letter I wrote on behalf of AMPS in response to an FSA consultation found its way to a journalist (we distribute our consultation responses to the AMPS membership).

I’m a supporter of consumers being given everything they need to know about the SIPP they are about to sign up to.  This includes in-your-face charges, percentage of funds, kickbacks, interest rate retention.  SIPP companies need to be profitable.  Would you book a holiday with a company that you think is about to go bust?  No, so why would you want to put your pension money with a firm that isn’t getting enough income.  SIPP companies should have no problem in being open about how they are funded.

But do you really want pages of illustrations to wade through?  Would you read them?  What do you really want.

Let’s look at mortgages.  The last time you looked around the market I reckon you would filter by type (fixed or variable),  compare the immediate interest rate, take note of the APR – a common standard, and perhaps look at penalty terms for moving your mortgage or changing house.

That’s not too hard if you want to go direct rather than via a mortgage broker, or a mortgage broker could do the same for you and perhaps look at other options too.  Mortgages are long term with potential lock-ins.  Can’t we use a similar system for pensions?

Consider this.  You filter your pension by type (PPP, funds only SIPP, bespoke SIPP), look at the headline charge (might be %age fee or fixed annual fee), compare some standard fee quotes for a standard client, and then take note of transfer out fees in case you need to change your mind.

That could work.

When you finally chose your mortgage, did you read the illustration that they provided in detail, or were you confident that you had selected the right mortgage and so you glossed over the small print and the illustration?  You might have checked the interest rate/APR and the table of early redemption penalties, but perhaps not much more.

That’s the type of system I support.  It’s not right to tick a few boxes and think that the problem has gone away.  SIPP companies are updating their systems to take account of the new illustration rules.  Why not just accept them and leave things be.

The answer is because it doesn’t solve the fundamental problem that consumers will still not be able to compare products or understand the costs.

We don’t have this problem with mortgages.

{image courtesy of}

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