Ros Altmann is renowned for her longstanding efforts in fighting pensions injustices and she’s not finished yet. She talks to Peer-to-Peer Finance News about the latest threats to savers, the importance of good finance advice and what she really thinks of P2P lending…
ROS ALTMANN, or Baroness Altmann of Tottenham to use her full title, is synonymous with pensions. The veteran consumer rights champion and former pensions minister has made her name by battling pensions injustices, which has won her a slew of awards as well as her peerage.
But the former Chase Manhattan banker is not resting on her laurels – not when there are still plenty of battles to fight.
“I think we’ve got the makings of a really brilliant pension system,” she says. “The problem is that government policy could snatch defeat from the jaws of victory, confusing people with Individual Savings Accounts (ISAs). Actually pensions are the best way to save for retirement.”
Altmann is highly sceptical about ISAs being used as retirement savings products, arguing that they encourage spending at 60 “and nothing left at age 80”. She reasons that pensions offer more benefits, as recent freedom of choice reforms mean they can be passed on after death free of tax, removing the pressure to spend one’s entire pension pot.
“If you turn pensions into ISAs, you destroy pensions. Let’s be clear,” she says. “There is no doubt in my mind that by trying to turn pensions into ISAs you destroy them and you will be heading for millions more poor people in later life.
“You will be leaving a problem for the government of the future and if you’ve incentivised ISAs as well, you’ve really wasted today’s taxpayers’ money.”
Pensions and politics
Altmann is a little wary of politicians’ involvement in the pensions system – unsurprisingly considering her rather short-lived tenure as a government minister.
She stepped down in July after 15 months in the role, amid new Prime Minister Theresa May’s reshuffle. In her resignation letter she said that she was not convinced the government had done enough to address the hardship facing women who had their state pension age increased at short notice.
Altmann did not have a particularly enjoyable time in government. In an interview after her departure, she was reported as saying that it was “the most terrible experience” and that she felt “silenced” by officials.
It makes sense that politics didn’t suit Altmann, who is used to fighting the system, rather than being part of it.
“My concern is that politicians don’t seem be able to resist this idea that we should be tinkering all the time,” she says. “Sometimes, especially with pensions, you need to leave things alone to develop. The policy of auto enrolment started in 2012, it’s not going to be finished until 2019. But there’s a real, serious danger that before it’s finished, government will have lost patience and said oh we need to change something here. And that’s the worst way to make policy.”
Altmann’s enthusiasm about pensions does not mean she is blinkered to the variety of investment options open to consumers.
“Anything we can do to encourage more saving is great,” she says. “If we’ve got the retail investment market working and we keep the pension system working well, there would be nothing to stop people transferring money over into the pension wrapper once they’re ready.
“In your 20s you might prefer to put your extra discretionary money into a different retail savings product. That’s fine, but have a plan to move it over into a pension – which is the best way to save – when you’re ready.”
The benefits of alternative investing
Refreshingly for a high-profile figure, she is positive about the benefits of peer-to-peer lending for consumers looking to build a nest egg.
“I’m very, very much in favour of alternative investing and diversification, particularly for long-term investors,” she asserts. “As long as people understand the risks and there are consumer safeguards in place, we should encourage people to diversify. Especially in the current interest rate environment, where nobody knows what the Bank of England’s policies have done to investment risk anyway.”
Altmann has been typically outspoken about central bank policy in the past, arguing that quantitative easing and very low interest rates have had a detrimental effect on savers.
“There is no guarantee that you won’t lose money in any investment,” she declares. “There’s certainly no guarantee that central bank policy hasn’t distorted what was supposed to be the risk-free asset; therefore having a diversified range of options may well be the better way to reduce risk, rather than sticking with what are supposedly safer assets.
“Peer-to-peer finance could have a good role, as long as you’re with a good company that assesses who you’re lending to in a responsible way,” she continues. “That doesn’t mean none of the borrowers will fail, but it does mean somebody is trying to assess the risk properly. That should give you better returns than just sticking your money in conventional bonds, for example. And certainly better than cash.”
Making informed choices is pivotal to Altmann’s investment ethos and she believes that paying for financial advice should become more commonplace.
“I think people need to better understand why it is actually a good idea to consider paying for advice,” she says. “Yes, we need to offer free guidance; that would be a first step and would certainly help. We need financial education and better public awareness of financial planning. But that in itself wouldn’t be enough.
“If you wanted to build an extension to your house, you would pay an architect to draw up plans for you. You wouldn’t expect to have somebody do it for you for nothing. If you wanted to buy a house and needed expert legal advice, you’d expect to pay a lawyer for their expertise and experience that you don’t have.
“In a way that’s like professional financial advice. Somebody is qualified and supposedly working in your interest to help you do something you want to do.”
Altmann blames this disconnect on financial providers’ past behaviour of using salesmen paid on commission recouped from individuals’ investments, rather than advertised as an upfront fee.
“It wasn’t really advice, it was more like sales, but it was called advice. As the fees were hidden away, lots of people are used to the idea that advice should be free.”
She thinks there is room for improvement when it comes to overseeing the financial advice market. “The FCA has been trying to regulate it and I think it’s made a bit of a Horlicks of it to be honest,” she says.
“The retail distribution review was well intentioned and was meant to help establish a clear dividing line between sales and advice, but unfortunately the word advice is just not clear enough.
“The word advice should only refer to the professional individual financial help that people get which they pay for. But at the moment the word advice is just so confused.”
The former director-general of Saga Group is similarly sceptical about robo-advice – this year’s hot fintech trend for automated advice services.
“Robo-advice has a very confused name, because mostly it’s not advice, it’s more like information,” she comments. “But I think there’s a huge role for more information and more financial planning guidance. Just telling people they’re not saving enough all the time is a stuck record and it doesn’t help.”
The technology revolution
Altmann sees opportunities within the wider technology space to revolutionise the savings and pensions market.
“I actually think younger people are pretty smart and there is an opportunity via technology to engage them in ways the industry never engaged older people,” she says.
“That doesn’t mean it should be exclusively for younger people, but I do think that appealing to people with different technology has the potential to revolutionise financial selling and financial products and saving.”
She thinks existing pensions providers have missed a trick by not riding the fintech wave and suggests a disruptor could enter the market.
“You can imagine something like the Amazon pension, where a pound goes into a long-term savings pension vehicle every time you buy something off Amazon,” she says. “Or if you get a refund you could put some of it into your pension. Technology at the point of sale of anything unrelated to pensions could be harnessed to help people save more.
“The fact is, people should automatically think about saving in a way they don’t,” she adds. But you can bet anything that Altmann will make her very best efforts to change that.
Altmann takes on…
…the Bank of England’s chief economist Andy Haldane, who said property is a better investment for retirement than a pension
“That was one of the most irresponsible comments I’ve seen for a long time. Pensions are so much better than property. Anyone that suggests you should focus on only one asset, especially an asset that has been artificially distorted and driven up to incredibly high levels, surely needs to understand personal finance better.”
…Sir Philip Green and BHS
“I can’t tell you how upset I’ve been at the BHS situation, as most employers are not trying to avoid pension liabilities. I actually do think Philip Green will sort this one out, but in the meantime people are left with the impression that unscrupulous employers are trying to diddle all their pension scheme members and I don’t believe that’s the case.
“I think Green meant what he said when he told parliament that he was going to sort it. I don’t have any views on [whether he should lose his knighthood], all I care about is the pensions aspect. He needs to do the right thing by his workers and pay the money.”
…the new Lifetime ISA, which encourages people to save for a first home and their retirement simultaneously, but puts a five per cent penalty charge on early withdrawals
“The Lifetime ISA is the next big mis-selling scandal waiting to happen and if I was a provider I would not want to sell one carelessly. If you sell it to people without explaining the risks, you run the risk of them coming back in a few years time saying, hang on a minute, you didn’t tell me I shouldn’t have opted out of my workplace pension and give up my employer contribution, you didn’t tell me that there was this huge penalty if I actually want to access my money.
“Carelessly distributing this product would be against the interest of the providers, never mind the customers.”
Read this article and much more in the upcoming print edition of Peer-to-Peer Finance News, out at the start of December.