Brendan Burgess
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The following is in the current edition of Public Sector Times. It was written by Paul Murphy the presenter of the programme.
Your December edition carried a full page of robust criticism of a recent Prime Time investigation into the misselling of pension AVCs to public servants, including a lengthy and misguided article by pensions advisor Owen Dwyer and a letter by Pensions Ombudsman Paul Kenny.
Mr Dwyer is an industry insider and his decision to shoot the messenger is not surprising. However, criticism from Paul Kenny is harder to understand. Mr Kenny no longer works in the pensions industry and he is fully aware that the office of the Pensions Ombudsman, by definition, has to be - and perceived to be - utterly impartial. In this issue he has openly taken sides and even leaked correspondence between his office and Prime Time to Cornmarket, the company at the centre of our misselling investigation.
The key points of the Prime Time programme of November 13 were ignored by Mr Kenny in his letter and apparently misunderstood by Mr Dwyer.
The first key point was that public servants are being misled into buying AVCs in cases where the Notional Service Purchase (NSP) scheme would be more suitable. As evidence, we showed viewers hidden camera footage of a consultation with a Cornmarket consultant. In the programme we also interviewed teachers who said they were misled into signing up for AVC schemes.
The second key point was that choosing AVCs over NSP can have dire financial consequences. AVCs can be useful in certain circumstances, but for those who want the best pension but will not have 40 years of service by retirement (the most common pensions conundrum facing teachers and nurses in particular), NSP is undoubtedly superior. Even Cornmarket’s own literature says it.
Mr Kenny alleges in the letter published in the Public Sector Times that the Prime Time programme was “a very unbalanced and sensationalist view of AVC selling in the Public Sector.” This is one of the latest interventions by the Pensions Ombudsman in relation to Cornmarket and Prime Time. Even before the programme was broadcast Mr Kenny leaked to Cornmarket correspondence between Prime Time and himself. On November 11, two days before broadcast, Prime Time received a lengthy letter from solicitors for the Cornmarket consultant filmed on hidden camera. The solicitors’ letter said: “…we have been made aware of an exchange of emails on the 7-10 November between Mr Murphy [this writer] and Mr Paul Kenny the Pensions Ombudsman and would refer you in particular to Mr Kenny’s responses to Mr Murphy at 7 November at 16:48 and 10 November at 10:35.” The letter then quoted from the emails that Mr Kenny had sent. Why did the Ombudsman leak his correspondence written to Prime Time to the very company that was under the misselling spotlight? Mr Kenny later told Prime Time, “As to why I shared them with [Cornmarket Managing Director] Michael O'Brien in the first place … he mentioned that he had reservations about the fairness of the proposed piece. I thought that if I told him what I had written in the expectation of achieving some balance in the programme, it might help.”
Mr Kenny has also attacked the PEPS pensions advice group led by retired accountant George O’Sullivan. Mr O’Sullivan was interviewed for the programme and is a long-time campaigner against AVC misselling. After the programme, Mr Kenny was quoted as telling the Sunday Times that "I've referred Peps to the Financial Regulator because they're not authorised to give financial advice.” Such public comment from an ombudsman about a case he says he has referred to the Regulator is unorthodox. But what is even more extraordinary is that there appears to be no written record of any referral being made by Mr Kenny. In any case the Financial Regulator has said in relation to Mr O’Sullivan and PEPS that its “position is that authorisation is not required where advice is given without remuneration.”
The Pensions Ombudsman has since told Prime Time that his referral of PEPS was not a “formal written complaint.” We had asked him if it was appropriate for the Ombudsman to state publicly that he had referred a group to the Regulator when, as he knows, the regulator cannot investigate any such referral. He simply said: “I have no difficulty about expressing the views I have expressed, nor about making known the reservations that I have.” It is noteworthy that Mr Kenny has not expressed any reservations publicly about the behaviour of the Cornmarket consultant shown in the programme.
The smear on George O’Sullivan has stuck, however, and soon after the programme Internet postings by supporters of Cornmarket wrote that Mr O’Sullivan was “being investigated by the Regulator,” even though that is untrue.
But what about Mr Dwyer’s criticisms? His company advises public servants on pensions, but he appears to be misinformed on key benefits of Notional Service Purchase. He wrote that that “the NSP is NOT, as repeatedly stated in the programme, guaranteed, the cost is reviewed every two years.” He is incorrect. Those who sign up for NSP pay a percentage of salary that is fixed from the date of entry. This is a core advantage of NSP.
Mr Dwyer, also argues with convoluted logic that the NSP pension is not guaranteed for those made permanent after 1995. In fact it is guaranteed in any accepted sense, if you retire with 40 years of actual or notional service you know that you will get a fixed percentage, typically one half, of your final salary. That figure includes the contributory pension, but it is guaranteed.
Mr Dwyer also writes “For the record the NPS (sic) is NOT a better scheme than an AVC.” For those needing to plug a years-of-service gap, by far the most common type of pensions dilemma facing public servants, Notional Service is in fact superior to AVCs. Even the Retirement Benefit Review brochure of Cornmarket, which is the biggest seller of AVCs to public servants, says it explicitly on page 37: “For those who have missed years of service there is no better way of making up your pension shortfall.”
And yet AVC promotion is wildly successful. There are 14,000 primary teachers paying AVCs through salary deduction to Cornmarket, 15 times more than the 900 who are paying for notional service. So why do so many public servants sign up for AVCs.
To answer this question I arranged to meet with a Cornmarket consultant, wearing a hidden camera. I said I was a teacher who had started teaching late and had taken a career break. I wanted to retire at 60 and would be 10 years short of service for a full pension.
I was an obvious candidate for Notional Service but the Cornmarket rep didn’t see it that way. He went into overdrive on an AVC sales pitch. After he had moved on to a sales pitch for another financial product I raised the question of buying back years. Only then did the Cornmarket rep mention Notional Service, and then he emphasised what he saw as its disadvantages. He said it was “expensive” and even, ludicrously, that it was “risky”. He also told me incorrectly that I couldn’t buy back years spent on a career break. AVCs were his clear recommendation?
If I was really a teacher how much could this bad advice have cost me? We asked one of Ireland’s most respected actuaries, Shane Whelan from UCD, to crunch the numbers and directly compare NSP and AVCs on value for money. His conclusions were unambiguous: for my imaginary profile - that of a 40-year-old teacher seeking to plug a ten-year service gap, Notional Service, he projected, would provide a pension worth 65%-90% more than AVCs.
Selling AVCs to public servants is big business. Take Cornmarket’s INTO scheme. If the 14,000 members stayed in the scheme for an average 20 years, revenue in fund management fees for Cornmarket parent Irish Life and Permanent would likely be in excess of €100m. That’s just the INTO scheme. With so much at stake, it is time for the unions to start asking probing questions about the sale of AVCs to their members.