Safe Pension Funds?

Here in the UK, as people approach their retirement, financial advisors will often switch their pensions into ‘safe’ funds, usually loaded up with government bonds. There are increasing stories appearing in the financial press like this one:

I think that the problem here is that financial advisors are not generally trained in economics and are just used to investing in funds, following a tried and traditional way of doing things.

As a matter of intest what happens in the USA?

This is why you should own bonds, not bond funds. Had the advisor done that the retiree would have been fine.


A few years ago, there was a push in Congress to hold investment advisors for retirement accounts to a fiduciary standard, so their first concern would be what was best for the client, whose money they were playing with. Who pushed back? The investment advisors. The legislation failed.

In the US “investment advisor” = “salesman”



The same here. The problem with many of these funds is that the transfer to government stock is done automatically as people approach their retirement. They go by the name of lifestyle pensions. No one sits down with people and explain the options - no money in that!

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are not even mentioned in your article and not even a relevant topic. This guy lost money based on a (faulty) automated system that an actual financial advisor would likely have avoided.

Do you even read your own links before drawing a conclusion?

To quote:

At 64, David’s pension pot was automatically transferred by his pension provider Aegon into a fund designed to keep his money safe in low-risk investments.

The Scottish Equitable Retirement fund is 75 per cent invested in UK bonds with the remaining 25 per cent in cash-like assets.

But far from protecting his hard-earned savings, the fund has dramatically dropped in value. Over the past three years, the fund has lost 40.50 per cent of its value, according to fund scrutineer Trustnet.


I mention the automatic transfer

The funds would, in many cases, have been recommended by an ‘actual financial advisor’ who them took his commission and lost interest

So, no.

You are making unfounded guesses.

There are NO recommendation being made in these situations. The guy in your story did not meet with someone that reviewed their needs and then put together a plan to invest them in 100% Scottish bonds. If that actually happened, he would have stated such and not only would he have blamed that person, he likely would be suing them.

Scotland likely has a law that requires that the pension fund do exactly what they did without any input from a real person - just like many people in the US are automatically invested in certain “target-date” funds within 401ks and for which no profession was individually consulted.

No I’m not. I was a Chartered Accountant in practice for 35 years. I know what goes on, I’ve see enough of it.

Your Appeal to Authority needs practice.

I’ve been in financial planning for over 20 years - that doesn’t make me an expert on taxes any more than your experience with taxes makes you an expert on financial planning.

The fact remains that no where in your article does it state or even suggest that the person worked with a professional to get individualized advice. Just admit you missed this one and move on.


The article was about funds with a few examples thrown in. The losses were staggering:

More than £6 billion has been wiped from the value of older workers’ pensions as an estimated £15 billion in workplace schemes was invested in these funds as of 18 months ago, according to AJ Bell.

£6 billion! Somebody wasn’t doing their job

Agreed. Nice to see you drop your claim that it was a Financial Advisor.

It was very likely the fault of the government who should have allowed for greater diversification in their automated process - or completely changed that process in light of falling bond prices.

Some brief education for you.

Vanguard Total Bond Market (VBTLX) lost 13% last year - the worst year on record for that bond fund. That fund has a prospectus that mandates how it invests. The fund managers have restrictions on how they can invest. For example, the managers would not be permitted to invest a portion in stock as it would be deemed a violation. They also would not be permitted to invest in a significant portion of India bonds, for example. They have to follow the prospectus.

If the Scottish government then mandated someone that retires be invested in that fund, then it isn’t the fault of either Vanguard or some unnamed Financial Advisor that the client lost money. It is the fault of the Scottish government for no providing diversification outside of a single fund or a single asset (bonds) as part of their automated process.

Who else could be at fault? No one else can (legally) give financial advice.

That is the POINT! No advice is being given. You understand what automated means, right?

You probably have not heard of the Qualified Default Investment Alternative (QDIA). If you haven’t, I am not surprised. Most people outside of the profession (like tax professionals), may have not heard the term before.

Scotland’s program is probably very similar.


The Pension Protection Act of 2006, signed by President Bush on August 17, 2006, removes several impediments to automatic enrollment plans. A key one of these is amending the Employee Retirement Income Security Act (ERISA) to provide a safe harbor for plan fiduciaries investing participant assets in certain types of default investment alternatives in the absence of participant investment direction.

In other words, no one is giving anyone advice. They are being automatically invested in a plan (likely based on either age or time until retirement). At least in this case, it only happens when the participant (the employee) has failed to give direction on how the funds should be invested.


  • A QDIA must be diversified so as to minimize the risk of large losses.
  • A QDIA may not invest participant contributions directly in employer securities.
  • A QDIA may be:
    • Life-cycle or targeted-retirement-date fund;
    • Balanced fund; or
    • Professionally managed account.

Again, no individual advice was given.

Wouldn’t that be a perfect crime scenario? Millions go to someone else’s pocket, but there is no perp to be held accountable, because it was “automatic”, because “big gummit” made it that way?


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