Who owns your pension???????

Regular readers of my posts will know that I am very critical of the manner in which financial advice is imparted here in Ireland, in that what looks to be independent financial advice would be more accurately described as “product selling”. The additional habit of making our financial decisions in isolation from each other, which leads to us having multiple financial advisers (who neither share specific objectives, nor even meet each other in most cases) also robs us all of valuable income and capital over time.

However, my criticism is not limited to “how” most of us engage with the financial advice marketplace and in this post I wish to illustrate that the products being “sold” in this manner are often far inferior than many believe (advisees and advisors alike). Particularly I want to focus in on what are termed “Unit-Linked Pensions” (and if you have invested in any insured pension in the last 20 years it is most likely a “Unit-Linked Pension”) and the legal structure used.

Most of you investing in this type of pension I am sure believe that the cash invested is “yours”, being held for your sole benefit by a custodian insurance company? You, I imagine, similarly believe that your Policy Document is a legally binding contract that guarantees you specific benefits? If so, I am sorry to have to inform you that your beliefs are incorrect. What is true about these pensions (and here I refer to pension funds where you have yet to start to draw an income, slightly different structures apply when a pension is in payment) is: -

• The investment assets “linked” to your Pension do not belong to you, they are legally the assets of the insurance company! - This means that, in the unfortunate event of the commercial failure of your pension provider, not a single penny of “your” pension fund is guaranteed to be paid to you. Indeed, you would be in no better a position than any other investor owed money by that company and would be lined up in the street wondering how many cents in the euro you may be lucky enough to get from the liquidator.
• Your Policy Document has no more legal standing than an IOU! This means that the policy entitles you to the value of your pension, however, as the value is decided by the insurer solely (there is no independent auditing of these pension funds), effectively this IOU says “we owe you something, but have yet to decide what the “something” is”.

What these facts mean is that, looking at it in a slightly different manner for a moment, those of you invested in these pensions are taking a risk like a shareholder (in that if the company goes bust, losses ensue) but you are NOT receiving the same rewards. Shareholders in these companies have done very well historically, but those invested in the pension funds have tended to enjoy far inferior annual gains.

Of course, there is a solution to these issues, one that can not only GUARANTEE that your pension fund belongs to you ONLY, but can do so without having to change the investment funds and may even be less costly over time. Costs for the solution vary dependent upon the size of funds and the business structure you use (Ltd Co, sole trader, partnership…etc.) but I will meet all those interested in looking into this issue further without cost or commitment. For anyone with more than €30,000 invested in a fund like this, the costs will likely be insignificant to the benefits being enjoyed. To book a free consultation please contact me at this email address: [email protected].

I have one more request please, share this post with anyone and everyone you think may find it relevant/interesting? More than 50% of Irish tax payers have some form of pension and experience tells me that a huge percentage of them be “Unit-Linked Pensions”. The more people that know about these issues the better. Thanks.

Paul A. Overy QFA, FLIA

May 2016