Letters in Financial Times Regarding FSA Calling Employer Pensions ‘Guaranteed’

by Dr. Ros Altmann

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From Financial times May 15/16 2004 Letters page.

FSA guide has to be read in context
From Ms. Anna Bradley

Sir, Your article 'Watchdog accused of misleading the public on pensions' (FT Money and Business May 8-9), describing a Financial Services Authority booklet on pensions as 'potentially misleading the public about the safety of final salary pension schemes', fails to take account of context and so misrepresents the position.

The FSA's consumer publications cover a wide range of subjects in differing levels of detail, depending on their purpose.

Our pension guides aim to provide basic level generic information about how different types of pension schemes work. Their purpose is to help consumers ask the right questions of their employers or financial advisers before making any decisions.

In this context, the word 'guaranteed' was used as a way of illustrating the difference between an occupational final salary scheme, which normally provides consumers with a specific percentage of their salary, irrespective of investment performance, and a money-purchase or personal pension where consumers are exposed to investment risk.

The publications are not a substitute for the information provided to employees by the trustees of an occupational pension scheme.

Anna Bradley,
Head of Retail Themes,
Financial Services Authority
London E14 5HS

RESPONSE FROM ROS ALTMANN: (Published on 22nd May 2004)

The Editor
Financial Times
Number One
Southwark Bridge
SE1 9HL 16th May 2004


The FSA’s attempt to justify misleading members of final salary occupational pension schemes into believing their benefits were ‘guaranteed’ (Letters, May 16) is outrageous.

The claim that this statement was taken ‘out of context’ is worth pursuing, because if the wording of the FSA booklets is taken in context, the evidence against the regulator is even stronger! As the FSA letter rightly points out, its pension guides are there to ‘help consumers ask the right questions of their employers’. Sadly, there was a glaring omission, which led members to believe their pensions were safe, when they were not. The two particular guides, which are the worst examples of misleading the public, are entitled ‘FSA guide to the risks of opting out of your employer’s pension scheme’ and ‘FSA guide to the risks of pension transfers’. These were designed for members of occupational pension schemes who were thinking of transferring to another type of pension. Both booklets refer to final salary pension schemes as offering ‘guaranteed pensions’ – not once, but twice each, and contrast this with the ‘uncertain’ level of pension available from personal pensions. Neither booklet alerts members to ask their employers the most important question of all - whether they are thinking of winding up the scheme. Nor do they suggest the need to consider whether their employer is likely to stay in business. The entire tone of these FSA booklets is that members should stay in their employer final salary scheme, to take advantage of the ‘guaranteed’ benefits. Not one mention of the huge risk to their pension if the scheme winds up. If financial firms behaved in this way, encouraging people to put money in, without warning of the risks, the FSA would require them to compensate for any losses.

Doubly damning, however, is that these booklets were sent out after the Treasury was advised by the Institute of Actuaries, in 2000, that members should be warned of the risks to their pension from employer insolvency. After consulting on this issue, the Treasury decided not to warn them and the FSA continued to tell them that their employer was offering a guaranteed pension. How were members to have any idea that their pension was not safe? They were denied the chance of transferring their money out of their employer’s scheme, because they were not warned of the risks. Surely, the FSA owes these poor members an apology and full compensation, rather than trying to justify the incorrect information they published.

Ros Altmann

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