To laugh or to cry? – the ABI’s review of legacy charges.

laugh or cry

Nearly a year and a half on from the publication of the OTT’s damning report on workplace pension provision, the ABI have proudly announced that Frontier Economics have reported on the charges their members have been making on our DC pensions.

There should be very few surprises. The joint numbers are much as reported by the OFT and individually the insurers can hardly have failed to notice that money has been pouring into their coffers at the reported rates.

Should we laugh or cry to be told what we knew , the insurers knew, the OFT knew? Apparnetly Steve Webb was shocked but he shouldn’t be. The terms and conditions of the policies we bought made it quite clear of the consequences of our actions, I am minded to laugh!

But then I think about what those charges were used for and my smiles turn to tears. The bulk of the charges levied by insurers were justified at outset as financing the cost of advice over the lifetime of the policy.

The idea was that even if you had paid one or two years contributions, you would be entitled to advice over the lifetime of the contract which was financed from a charge- often as high as 6%pa of the first two years contributions.

To put this in terms we can all understood.

Lets look at an example.

I pay £1000 pa into a personal pension for two years 25 years ago.

The insurance company pays 75% of the first year’s contribution to a financial adviser £750.

The insurance company takes 6% of the £2000 (£120) every year for 25 years, slightly less if the fund value falls below £2000, slightly more if it is more than £2000.

After 6 years it has recovered the money it paid the adviser but the adviser continues to offer advice on the policy, financed by the intial payment of £750 .

In theory

Meanwhile the adviser has moved on. Unless there is a good reason to see the client again (e.g. he is likely to take out another policy of increase his existing policy, there is no incentive to see the client ever again.

Indeed, such a meeting is likely to be embarassing as it will become clearer every year that the growth is the first two years contributions is severely impaired- if growth there is at all.

Much of the ABI’s study is pre-occupied with the sad fate of people who gave up saving in the first two years. They gave up saving for a variety of reasons, some of which I list below

  1. They moved to a job with a pension (in those days it was not easy to run pensions concurrently
  2. They left the labour market (unemployed, maternity, career break etc.)
  3. They were skint and couldn’t afford the premiums
  4. They jacked the policy in and decided to do something else with their money

In theory

This is when their advisor should have been their friend, advising them of the consequences of stopping their policy early (making it paid up- to use the parlance).

Contributions made outside the initial two year charging window were not subject to the same charges. Allied Dunbar reduced third year charges from 4.5 to 0.75%. If people had been told of their options they could have recommenced their policies or converted them to other policies in the range. They might even have negotiated with their adviser for a commission rebate in return for releasing the adviser from his duty of care on the policy.

But in fact…

The adviser, as soon as he had the application form in his hand had an alternative agenda. The pension policy was no longer a means of securing the client’s financial security but was a voucher for a £750 payment when the next commission run was issued. Advice turned to sales , an advisory payment became points on the sales board.

The client was filed in an index card board , with the hope that two years premiums would be paid. Once the two years were up, no commission could be repaid and the 80/20 rule applied.

The 80/20 rule

The 80/20 rule says that 80% of your income comes from 20% of your clients. Ditch 80% of your clients and concentrate on the ones you can make future money from.

If you were poor or difficult you would be part of the 80%, if you were rich and compliant, you were in the 20%.

Did the insurance companies know?

Of course they did! They knew exactly what was going on , but the numbers added up. The outcomes of the pensions would be 25 years away. That policy sold in 1987 was not to mature till 2012!

And time is a great smokescreen. Those who knew in 1987 are either out of the industry or in the House of Lords. (Step forward Lord Leitch)

The successors and their successors can distance themselves from the crimes of the past.

Is this a victimless crime?

One of the saddest graphs in the report shows the distribution of the damage. It shows a massive spike among those 40 to 55 who would have been 25 some time in the window of maximum carnage (1987 – 2001).

The pensions of this generation were systematically raped. People who had done their two years with one insurer might find themselves doing their next two years with another (churn and burn we called it).

Some poor people returned to the scene of their financial abuse, only to be abused once more.

It was the poor, the ignorant and the uneducated who were most abused.

And what of that advisory promise?

You remember the theory; the payment of that big upfront commission was justified by a promise to service the policy over its lifetime. But this seldom happened. Advisers worked to the 80/20 rule, they moved on and their clients were left “orphaned”, advisory firms closed or were sold and whole “books” of clients were shunted like trucks in railway sidings, to be forgotten.

The real scandal

The real scandal was not the charges, it was a failure to deliver advice that those charges bought. The report’s terms of reference does not deal with the costs of the funds used (these will be looked at separately) . This is just dealing with the charges levied to run the insurance company, the policy and to pay advisers.

The upfront “initial” commission continued to be paid until the end of 2012. Shamelessly, advisers were still selling the myth of a lifetime of service right up to death of commission telling employers that pre-purchasing workplace pensions in 2012 would finance advice for years to come.

The promise was made to the company but the charge was levied on the member. Ordinary people were left to pay for pensions advice being given to their employers, often- as with the House of Fraser- quite large employers.

In this practice-  certain insurers- Aegon, Aviva and Sottish Widows chief among them, were quite complicit.

The practice of “getting employees to pay for their fire extinguishers” (Steve Webb’s phrase) has now been banned, so has the process of disguising high charges by lowering charges for those in employment (at the expense of those who aren’t).

These charges have repeatedly been used to fund advisers lifestyles, not to fund advice. They have transferred wealth from people’s retirement to the golf and polo clubs of Great Britain. This is the real scandal.

A whopping great lie

But to suppose that all this is being mysteriously revealed to insurers is a joke. The insurers have been playing behind the door of Ali-Baba’s cave for 30 years.

The cave door has been opened by Frontier Economics to reveal the treasure spent, the robbers gone. The robbers are now peering back into cave (in new clothes) bewailing the fate of their policyholders,

I don’t know whether to laugh or cry. The spectacle of the ABI praising itself for its new found candour is hilarious, but the plight of the tens of thousands of policyholders who own the £26.7bn of over-charged product is not a laughing matter.

This report is factually correct. But to suppose that it tells the insurance companies , their advisers and the Regulator something they did not already know is a whopping great lie.

And if Steve Webb is genuinely shocked – he is more of a mug than I take him for.

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What should we pay for the annuity guarantee?


mrage 2

The publication of the FCA’s market study on annuities has not met with much enthusiasm. Consumerists do not think it has gone far enough to punish lazy insurers. Those on the sell side find it hard to understand what the brave new world of pension dashboards, hybrid and collective products and non-advised drawdown will look like.

The FCA’s problem is that while they now have a good idea what has gone wrong, they cannot predict what will go right. Specifically they have no market data to show how outcomes will be improved in the post 2015 world of unrestricted drawdown, synthetic annuities and collective DC.

Can we rely on projections – must we wait to see outcomes?

Nor will they for many years, for outcome based analysis is by definition retrospective. The projections that surrounded the last pensions revolution, the introduction of personal pensions in 1987 assumed products that might produce a  13% pa return net of charges. As the charges on most personal pensions were at least 2% pa (and for paid up policies – often as high as 7% pa, these were heroic assumptions that could only hold good in times of high inflation and strong real growth in the economy.

These were the conditions prevailing in 1987 (at least before November of that year) and they continued to the end of the millenium. But since 2000, there has been no growth in the capital value of the FTSE 100 and inflation is struggling to stay positive.

Those 13% assumptions for net growth now look surreal, but at the time I remember people worrying that they would undercook the omelette!

There has been some pressure to  achieve transparency in the  cost of accumulating a pension pot and there will be more as the FCA roles out its instructions to IGCs on how to value the costs of funds in which their DC policyholders are invested.

Can we get transparency to know what goes into the annuity price?

But the pricing of annuities remains impenetrable. We simply do not know enough about what factors impact the annuity rate, what the true return would be were insurers not having to retain monies to meet the various requirements of shareholders and regulators.

Alan Higham, who is now at Fidelity (an American insurer) reckons that UK annuities are priced 20% lower than US annuities taking comparable risks in the underlying investments.

This would suggest either a retention from the shareholder, outrageous inefficiencies in operation or that insurers are having to keep too much in regulatory reserves. The trouble is , even the FCA find it hard to get to the bottom of it.

Having spoken to people who I trust in insurers such as L&G and Aviva and having been shown the internal rates of return calculations on the annuity books, I do not think the insurers are shaving the rates to line their pockets. Numerous studies going back to Orzag and Murtagh in the 1990s suggest that insurers are efficient in the way they run annuities.

Can we relax the regulatory burden on annuity providers to bring down prices?

I guess that the cost of the annuity is in the Guarantee and that that cost can only be reduced by a relaxation in the reserving that insurers need to make, to meet the kind of black-swan events that did for the Equitable Life.

The price of the Guarantee that is provided by annuities is probably reasonable. The second question is whether it is a price that people are prepared to pay.

When people do the maths, they realise that they are insuring themselves against events they cannot envisage, their living beyond 100, the risk of deflation (priced in the gilt rate) and all manner of risks that could upset an insurance company in the next 40 years (which need money to be set aside for).

People buying annuities are buying into a degree of certainty that they would never contemplate in other areas of their lives. Would we only work for an employer that could guarantee us a wage indefinitely? Would we invest in a market that promised us a copper bottomed return on our money over 40+ years, would we want to bet on our friends and families dying before a certain age?

The reckless conservatism of the middle aged?

These are the things that insurance companies have to price into their annuity rates. I wonder whether purchasing a life annuity with an estimated payment duration in excess of 30 years (and this goes for most annuities sold to people between 55 and 60, is such a smart thing to do. If there is market intervention , it may be to warn people about the reckless conservatism of such purchasing.

How will non-guaranteed pension rates compare?

There is an alternative, which is to take out these guarantees and see what rate becomes available where the degree of certainty is reduced. What would be the impact of meeting promises in full 95 times out of a hundred or 97 times. How would that improve the rate compared with a 100% guarantee?

People will of course need to know what the implications are for those 5 or 3 times when the promise can be met, to know the value of their investment at risk. If the worst that might happen might be a 10% loss in the value of the income stream – ok, if 50% – not ok.

Nevertheless, the publication of non-guaranteed pension rates arising from an unguaranteed   alternative to annuities would be the best way to calculate the real cost of the annuity guarantee.

Until we see what the actual returns offered via the hybrid products and the synthetic annuities and most of all by CDC, actually are. Until we can assess the level of risk being taken on by those products we cannot really assess the real cost of annuities.

Is there a proxy for the non guaranteed rate that we can use today?

But in the short term we can look for proxies. We can look for instance at the rate that the Government Actuary requires us to use to value our defined benefit pensions. It says that it costs £20 to pay £1 of escalating pension compared to £28 to buy £1 of comparable pension as an insured annuity.

From this we can assume that the price of the annuity is equivalent to the difference in these rates. If you bought an annuity of £1000 pa, you would be paying £800 more than an occupational scheme would to secure the income.

Are GAD “scheme pension and individual rates” a reasonable proxy?

I am sure that this calculation is open to challenge on a number of fronts, but at least the GAD numbers are trying to compare apples with apples.

There are of course problems with receiving income from occupational pension schemes. Some would rather trust an insurance company’s pension to their company’s promise (for instance). But were you given the choice of a non-guaranteed rate which gave you £50 a year for every £1000 you had or one that gave you around £35, you would be asking whether the margin between the two rates was justified by the risk taken.

When will the FCA market move from “interim to final”?

That is the issue for the FCA, they cannot be definitive. This is only an interim report. There is a peice of the jigsaw missing.

The problem for the FCA is also a problem for people looking to make purchasing decision in the next 2 years over their pensions. It is that we  don’t know what the real price of the annuity is as we don’t know what the price of the drawdown, hybrid drawdown, synthetic annuity or CDC plan is going to be.

It makes it very difficult for advisers to make definitive recommendations and it makes for tough times for CAB and TPAS in advising people of their options (the guidance guarantee).

It makes it difficult but not impossible. In order for us to understand the possible we need to project, understand what might be. That means considering what these new options might be like and keeping an open mind to them.

Is best advice to delay taking a definitive course of action?

What the FCA paper does, and does skilfully, is to remind people that what their market study tells them in 2014 is that there is an incomplete market, that we don’t know the cost of annuities because we don’t know the price of the new products.

What the Financial Services Industry needs to do right now, is to price the new products and that is a terrifying task to existing players. It is practically impossible to re-price an existing drawdown proposition in the face of competition you can only imagine, For new entrants the question is whether to price products on “what we can get away with” or on the true price to meet reasonable returns.

What is the crucial next step?

That is the job of pricing actuaries working with pensions experts who know the market. It is perhaps the biggest challenge facing the pensions industry over the next twelve months and how the industry meets this challenge will determine the extent to which the Budget Pension Reforms lead to sustainably better outcomes or are just a mirage that disappears as you get down the road.

mrage 2

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Why I’ll be taking my chances in the death pool

homer death

There’s a lot of talk around about the unfairness of defined benefit pensions. Some say it is unfair to give the same pension to a “sick man” as a “well woman” and that the only fair way to calculate a pension is to medically underwrite the pensioner.

Some say that every sick man should take his money from the pool – “it’s every (sick) man for himself”.

I’m thinking about this at the moment.

I started out thinking …

How does an actuary think about death?

There are two ways they think about death; “individually and collectively”  but neither way brings much comfort.

Actuaries know a fair deal about death- at least statistically. But they do not concern themselves about the moral arguments surrounding mortality – that is not- and should not be – their business.

The formulation “mean brutish and short” was applied to the life of  the poor in the 18th century, the past 200 years has seen  not just a general improvement in mortality, but a narrowing of the gap between rich and poor, upper and lower, white and blue collar.

Even so, statistically the poor continue to live shorter (generally) than the rich and whether you consider that unfair or not, the social security systems , in as far as they provide insurance against old age, offer a subsidy from poor to rich.

This is troublesome to those who see redistribution as a tidal flow from rich to poor. But the job of the statistician is to observe, not comment.

Statisticians agree that a disproportionate amount per capita is allocated to the brutally mean and short lifespans of the lower orders. They are higher maintenance- they produce less, spend more of the NHS’ budget and have more resort to social security.

So poor people spend more of the kitty early on, and rich people spend more in later life – principally because they stick around. This is why our welfare state is considered fair,

All of this is empirically provable. There is nothing fair or unfair about the statistics – they just are. For every actuarial  model there will be winners and losers.

Actuaries don’t think about you. You are a part of their data-set. An actuary will always be conflicted in influencing your decision, by doing so he distorts the perfect equilibrium of the model. The model is designed to be fair.

death eqaul

One day we will all die by natural causes; death will be managed by health and safety. On this day, an actuary will be able to tell you what fair looks like individually as well as collectively.

One actuary summed up this grim vision with the observation

“We all die the same, it is only the timing of our dying that matters”.

In an ideal actuarial world, fair shares would be universal.

That day may be approaching as the dispersal of death-dates in the UK is decreasing.  Death is becoming an equal opportunity employer. Death is getting the diversity agenda.

The NHS and our welfare system aim to get Death dealing with rich and poor, male and female , black and white in the same way. In a perfect world we’d all die fair.

But Death is not there yet. Death can still cheat all predictions letting a 20 a day grannie live into her 90s. killing our youngsters. There’s sill no justice in mortality.

There are those who believe they can predict death’s fickle sickle. We will soon be able to map our genome to understand statistical probabilities of our demise with certainty.

These people think that accidental death will become an outlier 0n the stochastic map. With “health and safety ” – Grim Reaper’s little helper, “death from natural causes” will welcome us all at the Pearly Gates.

Some people will take a “Badass villain death match” with a computer and buy income on a computer’s bet on their likely day of death. It’s an anti-social thing to do.

If we all did it – we’d have no societal aspect to our pension schemes. “Every man or woman for himself” works in a world of universal conformity where natural causes dictate and health and safety manages.

For me Health and Safety sucks, I put no faith in death by natural causes. I know that I will get more than or less than what I put in, the chances of me getting fair shares from my retirement savings approximate to zero.


Actuaries don’t behave with emotion but people do!

So I don’t buy this spurious certainty offered by statistics. Death is still my final frontier and I’m not having a medical report telling me my lifespan. I’m not having a medical to tell me I’m getting a better annuity rate than the next man because I lie about my alcohol consumption.

I think of Yeats when I think of the mean-spirit of annuities

I call those works extravagance of breath
That are not suited for such men as come
proud, open-eyed and laughing to the tomb.

And I set against this  Bruce Springsteen’s

Outside there are just winners and losers..                                     but don’t get caught on the wrong side of that line

We can control what we do alive but even the Boss can’t circumvent death’s time-line.

Nor can I ignore the consequences of living forever, I need “e-ternity insurance” which gives to others if I die and takes from others if I live.

Neither an annuity or bare drawdown is the answer for my DNA.

People who think they can outsource their longevity to an insurance company or investment bank are making a pact with the devil. There is no nobility in this – no mutuality. The single annuitant dies alone.

It may be I die tomorrow, I may live a long long time, but I’m not going to some gypsy fortune teller of a medic to get an impaired life annuity.

Neither am I betting on my imminent demise and ignoring longevity risk.

bury head here

It may be that I. a reformed smoker, heavy drinker and bon-viveur will not make it to my 70th birthday. I may get a short-term kick from a spend spend spend approach to my money.

But I have a stubborn lust for life. I may need that defined benefit pension into my 90s and beyond.

When I live, I’ll take the income, enjoy the certainty of my pension without fear of tomorrow. And that includes the whining generation Y-Z etc.

Thousands rally for climate action and a carbon price



Where my head is at

I’ll take my chances in the pool of death. I will stick with my small rights in my DB scheme.

And  I won’t be buying an impaired life annuity with my DB rights or my DC savings.



If my need for certainty increases,  I’ll buy into more death pools – buy extra state pension , put my DC money into CDC decumulation.

I’m not taking a “Badass villain death match” with a death dating system. I will happily share.

When I’m gone, the death pool can have my money.

Actuaries can divi out my share to those left behind!

I’ll walk proud, open-eyed and laughing to the tomb.


Old is as old does

Hope I die before I get old.







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The coffin slams shut on annuities – but will they stalk the night?

zombie 1

There was no smoking gun. Annuities hare not bad value but- through poor purchasing, they have delivered poor outcomes.

This is my 20 word precis of the 100 page document which you can read for yourself here.

This conclusion has not delighted the journalists looking for a story of consumer detriment and unlimited redress. Annuities are not going to be the next PPI, the insurers are not going to be hung out to dry (as the banks are), the budgetary pension reforms will bring about changes in pensions which will sort the problem in time.”

At the heart of this document we find this statement

 profitability analysis is consistent with the findings of our previous thematic review, which found some differences in profitability in different parts of the market but did not find clear evidence of excessive profits overall.

and again…

In conclusion, our findings show that despite the poor perceived value, the right annuity, when purchased on the open market, may still represent the most appropriate retirement income product for some consumers

The coffin lid slams shut on mass market annuities. The corpse has been embalmed and laid to rest. May it rest in peace.

But something stirs in the dead of night…

In 2013, 353,000 annuities were sold, two thirds of which were standard annuities.

For these purchasers, the realisation that they must live with the corpse for the rest of their days, is resonant of the “night of the living dead”,

zombie 2



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Hats off to all workplace pension providers



I’ve referred earlier this week to an excellent article by Kim North in Money Marketing in which she points to the ongoing work Scottish Widows have been doing on the participation of women in workplace pensions. In the same article she argues that there is a moral argument for insurers to continue participating in auto-enrolment.

The link is there, auto-enrolment is a national project of significance way beyond the short-term p/l of a few financial services players. The long-term advantages in terms of being associated with a real success story (including the increased participation of women in the pension system, dwarfs the short-term difficulties some insurers are having adapting to a new type of customer.

Kim North and Bridget Greenwood (who shared the post with me) have met a steady stream of negative comments – all from men – both on the MM site and on the Linked In pages where the article appears.

I don’t think it’s a coincidence that it’s two ladies against dozens of men. That’s what it’s like to be female in financial services. I don’t think that it’s strange that two women are arguing from a moral basis and that the men are arguing that they are uncommercial and sentimental. After all this is a man’s world where the inequalities between male and female participation in the workplace has long been considered a side issue.

Purely on moral grounds, insurers have a moral responsibility, if only to their brand, to continue to insure and not withdraw from a project which is clearly working, in terms of inclusion and popular support.

I post below a second argument that I have taken from a thread with a number of comments on it. You can judge for yourself whether these comments are pragmatic or patronising. The thread is here. It’s on the “auto-enrolment  and workplace pensions mastermind” Linked In group which is well worth joining.


work and pensions

The first time I had to consider this was in 2010 when I sat in a room at the DWP with all the insurers who were then active in the workplace. It was the time of the Yeandle/Boulding/Johnson review of auto-enrolment. With one exception (L&G), the insurers said they did not intend to play in AE at the micro end.
At the time I thought this was posturing. Technology would catch up and they would find a way to deliver workplace pensions economically on an industrial scale. I have always thought that the market will require insurers to adapt to a new world and create product that can satisfy the needs of micro employers. I still think this will happen.

Since then, many insurers have come out with statements of intent, Scottish Widows say they intend to win 10,000 new customers, Standard Life’s good to go product is available to all but the smallest employers and organisations such as Royal London have revitalised their businesses to face the challenge ahead.

They recognise that the compulsory adoption of workplace pensions by all UK employers is a challenge that they need to be a part of. They are morally committed to participation.

I would consider it an act of wilful cowardice, of moral funk, if those insurers who have made commitments to the market, withdrew from those commitments. Unless that is, the assurance on which those commitments were undertaken are removed.

This is one of the reasons I want Government to be fair about NEST and about how they construct the workplace pension directory.

I am not saying that organisations such as Prudential, Zurich and RSA who were once key players in the SME space, are cowards, they made their intentions clear early on and have stuck to their guns. But organisations who have made it clear they are in it for the long haul, need to stick by their promise to the market – they know who they are!

Steve and Scott (friends and participants in the thread), the world will not be a better place for the withdrawal of current participants, the standard annuity market is an example of what can happen when diversity is lost, competition and innovation go out the window – the consumer suffers,

It is encouraging to see serious new entrants into the pension market- such as Friendly Pensions and a number of smaller master trusts making use of the low barriers to entry. They will succeed if good enough and we will promote them – if they are good enough.

We will continue to support the mainstream insurers as well as the bigger master trusts because a market without choice is a barren market for employers.

I would hope that all who care about the UK workplace pension market will join with Kim and Bridget in encouraging the on gong participation of the insurers’

It is important that the insurers who may be wavering, be encouraged to stay. If those who advise employers on auto-enrolment say that the workplace pension does not matter, then workplace pension providers will feel inclined not to bother. Actually we make too little of the ongoing participation of Friends and Aviva and Aegon and Royal London and Legal & General and Standard Life and indeed the many insurers not open to new business who have done work at the top end of the market (BlackRock, Fidelity,Zurich).

workplace pensions 2


Without these organisations, the burden on employers and their payrolls would have been immeasurably heavier to the extent that the artifice of auto-enrolment might well have cracked.

I will include the Regulator in this congratulatory roll-call as Charles Counsel and his team have done magnificently well to get us to where we are.

To see the auto-enrolment implementation project through, we need all of the above but particularly we need the ongoing support of the insurers to provide diversity, ease the capacity crunch and ensure that the high-standards of governance they are displaying (through their IGCs) are adopted across the workplace pension market.


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Clarity needed on NEST’s finances


Payola 2

The Pension Regulator has announced it intends to introduce a Directory of workplace pensions. The criteria for inclusion will be that the workplace pension must meet the Quality Standards being introduced from 2015 and that the workplace will be universally available to SMEs and micros going forward.

What is meant by “available ” is not defined. As the following article published in Money Marketing demonstrates, it is becoming practice among workplace pension providers to charge an implementation and sometimes a maintenance cost to the employer for the use of a workplace pension. You can read Sam Broadbent’s article here.


The one notable exception to the rule is NEST (though NOW are assuming a self-imposed public service obligation to follow NEST’s example – for now).

NEST does not charge fees for its services to employers, it just charges them to the tax-payer. It has been some time since I have seen management accounts of NEST and I don’t know the current level of drawdown of its debt to the DWP. I would be very surprised if it is anywhere close to break even and I can’t imagine that its current charging structure will recover debt anytime soon (for projected numbers read on).

But while its rivals either implement or contemplate employer charges, NEST can continue on its way, burning a hole in the tax-payer’s pocket at the tax-payer’s expense.

The Pension Regulator is going to have to consider whether its directory can properly contain anyone but NEST. After all, anyone can set up a master trust, charge an obscene implementation fee for its use, be included on the Directory and just waive its fee when it wants the business. It’s an old trick.

But if the Regulator cottons on and further requires the Directory to only contain workplace pensions which are free to employers at the point of entry and going forward, then- as Money Marketing point out – we may soon have a market of one.

Supporters of NEST will claim that this is as it should be and that the point of enrolling over a million SMEs and Micros was not to introduce choice but to manage the money through a central state control fund. If that is what we as a nation want, I think we should be straight with providers who are competing with NEST and tell them that NEST is going to get special status going forward.

I do not think this is what any political party wants (though I am sure there are some within the DWP and Treasury as seeing the only way of recovering the debt to the DWP (somewhere between £239m* and £650m).

According to the most recent projections (2012-15 NEST business plan), NEST expects to have 2014 revenues of £12m and expenditure of £109m -running costs and £4m capital expenditure this year. In other words it will make an operating loss of around £100

* this is the most recently published level of drawdown (in the 2013 published accounts)


The Payola Regulator?

So if NEST comes out top of the pops in the Pension Regulator’s Directory, then I hope a few people will point that it’s #1 status has been bought at a price that makes payola look like peanuts. (For those not using the link- Payola was a chart-rigging scandal which involved record companies artificially buying a spot on the hit-parade).

payola graphic

The tPR Directory- if not a qualitative directory-  will be just a list – a hit parade published by a department with every reason to keep it’s in-house band at number one!

But at least the idea of a Directory gets us to ask the question, “just how competitive is the workplace pension market”.

I would argue that so long as NEST is able to drawdown on its loan and write business at a loss, this is not a true market.

Further market distortion in the pipeline?

Conspiracy theorists will look at NEST’s current “consultation” on “post-retirement options” with some concern. If NEST are listening to Gregg McClymont and his talk of “super-aggregators”, they will be encouraged that there might be a chink of light in the tunnel.

If NEST becomes the aggregator of small mature pension pots and is given the mantle of “aggregator in chief” for the small nations pots, if NEST is funded to set up a system of pension payments that fills the gap between SIPPs and cashing-out, then NEST may have a viable commercial future.

NEST are being very coy about this consultation, Ostensibly it is about getting the public’s ideas for how it should offer the pension freedoms, but it looks very much like a Government consultation in its presentation and I’m more than a little suspicious of it.



Call to political parties to state their post election position on NEST’s finances

Yesterday I asked Gregg McClymont what the plan for NEST was. He was a bit shifty in his response, citing imminent reprisals from Ed Balls if he were to offer his thoughts. We don’t get much from the current Government on how they see NEST being viable.

And so long as we have NEST as a tax-payer toxic market disrupter which is at one moment a public service and another a commercial provider, we will have a distorted market.

We might consider that NEST is the only fruit and all of us peddling choice to SMEs and micros should pack up our e-trestles and go home.

We might point out that without a competitive market, the stress on NEST could be so great that NEST breaks under the strain, the £650m loan drawdown rate is busted and auto-enrolment (for smaller employers) falls apart.

A third way would be for Government to sit down and think through its current strategy towards choice in the workplace, confirm whether it is encouraging choice and then treat commercial providers fairly. That means making sure that NEST’s subsidy is not used to give them preferential status on directories and that NEST is forced to offer its services at the commercial rate.

If I were offering Gregg McClymont advice, I would suggest that he and Ed Balls sit down prior to the issuing of Labour’s pension manifesto and work out what its position is. I would suggest that George Osborne and whoever the conservatives have in mind to take over from Webb do the same.

Finally I would like to see Steve Webb, prior to April 2015 make a clear statement of what the DWP’s own debt recovery plan is for the taxpayer, so those of us involved in advising on workplace pensions, know what is in store both for NEST users and those who  have chosen to stay with commercial providers.


Tim Jones

NEST’s CEO is #1 but is the chart rigged?


Posted in DWP, NEST | Tagged , , , , , , , , , , , , , , , , , | 2 Comments

Clap along if you feel that happiness is the truth!


Clap along if you feel like a room without a roof!
Clap along if you feel that happiness is the truth!
Clap along if you know what happiness is to you!
Clap along if you feel like that’s what you want to do!


Three good  things happened to me yesterday

Firstly – subject to beating the Accies, Yeovil Town have a dream tie coming up in a few weeks.

Yeovil Town will play Manchester United at Huish Park on January 3rd for a place in the 4th round of the FA cup. It made me happy just writing that

It has been a poor season for us so far and if we can win our home game , this will set Christmas up nicely for Yeovil and her solid supporters.


Secondly  I went to a posh pension conference yesterday morning and heard the OECD compare our pension system to those of other members. It was enlightening, I felt I understood what we were doing better, looking at auto-enrolment in an international perspective.


Thirdly, on the train home from Basingstoke, I read a really fine statement in Money Marketing from someone I don’t know- but now wish I did – Kim North. You can read it here.

Kim doesn’t look like she’s done 30 years bird in financial services , but looking at her Linked In CV, I can see she’s been a big influencer in parts of the advice chain, I know nothing about.

She points towards a great project (which I’d forgotten about – the Scottish in Widows women in pensions report, the 2014 report in the series is here.


What links Yeovil Town, the OECD ,Kim and the Scottish Widows report is that they all point me in the same direction. They are all linked by Yeovil Town’s magnificent motto

Achieve by Unity

The last vestiges of the mutuality that inspired some Scots to set up a mutual to look after the widows of Scotland, Kim’s resolution in declaring auto-enrolment a moral crusade which creates greater fairness and in which our insurers have a moral obligation to participate and the grand scope of the OECD to promote best practice across borders and continents, is in stark contrast to the miserable behaviour on which I reported yesterday.

The unquenchable fire to achieve something great, though a common purpose, is at the heart of the British Welfare System which is an example to the world. We have much to learn from others and the OECD demonstrates our short-comings as well as illuminating our successes. Yeovil Town – a failing club, a failing town – pulls itself up by the boot-strings every Sunday morning and sets about achieving by unity. It has and it will. Kim North, after 30 years in financial services is still campaigning for greater fairness for women and greater choice in workplace pensions.

“Sunshine she’s here, you can take a break”


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Pensions too boring for DWP select committee member


Nigel Mills MP, who sits on the DWP’s Pension Select committee is so committed to his task that he chose to turn up to a DWP committee meeting as a part of the recent pensions debate. He used the time to  play Candy Crush Saga, which was filmed and the film published by the Sun.

If you sign up to the Sun you can watch him playing live!  But like Nigel , you may have better things to do , so you can read the detail in the Guardian here.

Is this a sadder reflection on the state of the pension debate or on Mr Mills?

Those of us who work in pensions are rather keen to get policy right and have a right to be disappointed when someone appointed to govern our pensions chooses to play a silly game on a hand-held device rather than focus on what is being debated.

But having read the  Hansard accounts on  a recent debate in the House, I am not that surprised,  there were a total of 33 new clauses and 72 amendments tabled in one go

The Pension Minister ,Steve Webb, had to spend most of his speech defending the number of amendments from “time-challenged” Conservatives. We now know  what at least one of the MPs was spending his time on (have a read -it’s all on the link).

I wrote last month about former Treasury Secretary, Mark Hoban’s view that the pension industry should look to gaming for ideas on how to engage, educate and empower members, perhaps this was what Nigel had in mind. As XTC sang

We’re only making plans for Nigel, Nigel just needs a helping hand!



MPs lose the right to criticise those in pensions when they are caught playing Candy Crush during pension debates. Having given of our time to help shape the legislative amendments to the Pension Schemes Bill,  we have every right to feel let down when members of our own select committee do not pay attention to the nitty-gritty.

If we want a really dumbed down pension system, we can have compulsion and the kind of pension taxes people get in Australia. But instead we have a more challenging system that gives people pension freedoms.

If the Guardian report is to be believed, it was these very freedoms (on which George Osborne will be campaigning) that Nigel Mills was supposed to be debating.

These freedoms do not come cheap. They require the expense of time and effort. That goes for the people benefiting from them, the people managing them and the people governing them.

Most of us spend many hours doing deeply boring work, it is what we are paid for. If I was found in a meeting playing Candy Crush Saga, I would expect to be on disciplinary, Nigel Mills will probably get away with nothing more than a ribbing.

I could  discuss with Nigel Mills why he preferred Candy Crush Saga to focussing on his job in hand this  Wednesday when we appear on the same panel at a Prospect Debate on “the Future of UK pensions”.

But I’ll resist the temptation, I’d prefer to discuss the agenda (that can be found on the link above). After all, it’s what I’m paid to do.

Candy Addiction


Posted in DWP, pensions | Tagged , , , , , , , , , , , , , | 4 Comments

Why employers pay no attention to the pension


Darren Say has written a very contentious article that you can read here

Darren opens by repeating three statements on pensions

…employers don’t want world class pensions, they just want the problem to comply with AE legislation to be taken off their hands – AE Pension ‘Expert’ view

…I’d rather pay fines than pay the extortionate fees I’m being quoted by greedy IFA’s using scare tactics to get me to comply with legislation, typical of the pensions industry to rip us off again – Director/Owner of a 80 strong workforce

I don’t trust pensions, they offer poor value and charges are taken even though I’ve had no growth in over 10 years, I’d rather invest in property – Pension scheme member view


Darren’s contention is that this disillusionment is not surprising as…

” it’s not actually a world class pension product that is being sold to meet the needs of savers, but scare tactics to comply with legislation, coupled with a big fee?”

I agree with Darren when he argues that the point of workplace pensions is to deliver a world class pensions saving product.

The big idea of auto-enrolment is to deliver this world class product/service through the workplace. The trouble is that by appointing the employer to select the right pension , you are asking a lot.

The OFT are right!


We’re finding that most employers have no reason to pay attention to the pension, because they have better things to do (and no motivation to change).

Advisers are doing little to engage, educate or empower staff about workplace pensions


Advisers will advise where they get paid, they have no confidence that they will be paid to advise on the pension by an employer who is distrustful of the advice, the product and doesn’t see why it has to pick up the bill in the first place.

We cannot expect advisers to be proactive in this process, they are reactive to the needs of their clients, they neither want or have the capacity to change  the world.


In order for the world to change, we are going to motivate employers to do things differently. Employers can (and I hope will) change behaviour because of pressure

1. From employees

2. From the Regulator

3. From self-interest

1. Staff pressure

My bet is that in time, enough  people who pay into the pensions (the staff) will start asking some questions about where their money is going, that employers will be forced to retrofit some kind of audit trail to demonstrate they have complied with their duties.

It takes a thick-skinned employer to pay 8% of most  of his staff’s pensions into a plan about which he knows or cares nothing about.

It takes a really dumb employer to admit it.

Since the cost of getting the pension decision right is pretty small and the consequences of losing the support of staff quite large, I expect to see employer pressure requiring employers to pay attention to the pension .


2. Regulatory pressure

If the Regulator was as strenuous in enforcing best practice in the choice of pensions as it was in enforcing auto-enrolment duties, things would be different.

It is a scandal that the Government’s education program has concentrated entirely on “being in” and has ignored the decision on what people should be “into”.

There will come a time -presumably after the revamp of regulation on DC plans in 2015 and again in 2016, when the Regulator turns its sites on the poor quality workplace pensions being used for auto-enrolment.

Many of the current plans still carry “toxic” features such as member borne commission. Many more have hidden charges that render them unsuitable for the mass market.


3. Enlightened self-interest

There comes a point when the major (perhaps the only) beneficiary of the workplace pension will be the person who decides upon the plan. Not surprisingly, the Regulator is worried by this state of affairs, seeing the decision as  “retail”.

There is no justification for this concern. The same dynamic is at play with 50 employee companies as with 1 employee companies, neither have a clue how to choose a pension , neither have much recourse to advice and neither are prepared to pay to get the education to be empowered to take the decision.


Darren’s definition of insanity

So we have the ridiculous situation of a multi-million pound advisory industry focussed on workforce assessments, opt-out procedures and statutory communications with a pittance being spent on developing the main event – the workplace pensions on which our hopes depend.

Darren lands on the Einstein statement


Until employers stop buying the wrong kind of pensions for their staff, until staff get default product which really works or the education to take informed decisions, we will continue – insanely – to perpetuate the same mistakes.

Posted in dc pensions, pension playpen, pensions, smelly | Tagged , , , , , , , , , , , , | 2 Comments

Why can’t we know what we pay for “fund management”?

'You're doing a little better since we deworsified your portfolio.'

We have the right to know what we are paying for funds. The cost of a fund can best be defined as the difference between what you would have received from a theoretical return on the assets in the fund and the actual return achieved on those assets.

So if the return, based purely in the movement in prices of the assets was 10% and the fund returns 8%, the cost of the fund is 2%. Taking percentages out of this, you would have paid £2,000 for every £100,000 you invested in the fund.

The word “theoretical” is important. You cannot invest without costs and investing through a fund can be cheaper than a DIY approach, especially if you are looking to actively manage the fund.

Very few people can be bothered to manage their own portfolio so the issue on charges and costs is not about a race to the bottom. It is about “value for money”.


If a second  manager can manage the same assets for £1,000 rather than £2,000, then it’s up to the more expensive manager to justify the extra cost. To demonstrate value for the money.

The Investment Management Association (IMA) has been under pressure to get their members to give us a fair means to compare fund management costs. However it has failed and is failing to get this done.

In a series of hard-hitting articles, fund manager Alan Miller and his wife Gina, have turned from poacher to gamekeeper , asking the questions of their trade body, that we as consumers have difficulty in asking.

This is their latest article, printed by kind permission of the authors (with some formatting changes). It is worth reading by anyone involved in purchasing funds either on their own behalf or on behalf of others.


The original of this article can be found here

Outraged by the industry mouthpiece’s (IMA) response to the recent damning Financial Services Consumer Panel (FSCP) report ‘Investment Costs – More Than Meets the Eye’, the True and Fair Campaign is issuing this statement pointing out how the IMA is misleading the public, regulator, politicians and journalists.

Instead of accepting the constructive criticism in the FSCP Report, written by respected experts and academics, and putting every effort into speedy, practical and understandable solutions, it appears the IMA is intent on being disingenuous by issuing false statements

“The IMA has now developed a new measure that tells consumers, in pounds and pence, exactly how much a unit in a fund grew over the course of a year and how much it cost to achieve that performance. Every penny spent by the fund is included in this figure and so it provides a simple, accessible, all-inclusive measure of all costs. Nothing is hidden and nothing is left out.
“Pounds and pence disclosure goes beyond any regulatory or legal requirement and is a big step forwards for consumer understanding. We expect it to be in place next spring, but there is more to do. The IMA is working on ways to measure and explain the significance of both portfolio turnover and spread and the part they play in returns”.
We invite readers to judge how the IMA proposed cost table
below tallies with its claims – where are the costs in £?


It is not all the costs, and in addition, publishing this table in the back of the
annual report one year after purchase, will amount to it still being hidden.

Here are the cost disclosures explained:

  1. The new measure is NOT ‘in pounds and pence’.
    It is a % per unit figure which has not been converted into pounds and pence. Consumers will need to know how many units they hold in order to convert this into any meaningful pounds and pence figure.
  2.  The new measure does NOT show exactly ‘how much it cost to achieve that performance’.
  3. Transaction costs or performance fees are shown separately rather than included in the
    reported ‘operating costs’. Fundamentally, it does not include the element of transaction
    costs known as spreads which can be an additional 85% of the total costs within funds
  4. It also completely excludes ALL transaction costs within a fund held by another fund (known as a “fund of fund”). The new measure is therefore NOT showing ‘every penny spent by the fund’.
  5. The new measure is NOT ‘simple’ The table contains 13 different numbers, 14 if the fund has performance fees. To work out the actual cost in pounds and pence requires the operating charges to be added to the disclosed ‘direct’ transaction costs and the performance fees, and then the undisclosed ‘indirect’ transaction costs to be calculated by the investor themselves, and then converted into pounds and pence by multiplying the number of units held.
  6. The new measure is NOT “accessible’. The IMA has indicated their half-baked disclosure will be within a fund’s annual statements. These statements are usually received by investors 12 –18 months AFTER they invest and few investors ever look at these statements anyway.
  7. It is FALSE that ‘nothing is hidden and nothing is left out’
    As stated in point 2 above, the IMA’s proposed solution leaves out up to 85% of the overall transaction costs according to recent CASS Business School research and has not even bothered to add up these costs or many other costs to produce a single reported number, or converted this number into a consumer understandable pounds and pence charge; we therefore challenge that it is a “simple, accessible, all-inclusive measure of costs”.
  8. It is disingenuous for the IMA to say that it is ‘working on ways to measure and explain the significance of both portfolio turnover and spread and the part they play in returns’ when it was the IMA itself that stopped its members having to report fund turnover in June 2012.
  9. Two years later and t h e y h a v e n o t p r o p o s e d a definitive measure. Furthermore, the IMA apparently wants to put in meaningless statements in fact sheets that the fund turnover was ‘High’ or ‘Low” with no proper quantification of the .

The True and Fair Campaign is also surprised that the dossier of other negative findings within theFSCP Report has not been seriously acknowledged by the industry or debated. This independent, academic report confirms what the Campaign has been saying for three years and notable esteemed academics and commentators have been saying for many more years:
 full charges can be up to 4x the headline charges
 there is no genuine price competition
 funds can arbitrarily choose how to allocate many costs
 economies of scale tend not to benefit the consumer
 performance reporting is misleading
 closet indexation is rife.
Gina Miller, Founder of SCM Direct & the True and Fair Campaign said, “We have known for years that the industry has been failing investors and the FSCP Report outlines these failings in black and white. The public, politicians, media and regulators should not be misled any longer by the industry association which continues to tow an anti-consumer line.

“We believe the majority of fund managers want to do the right thing rather than have their reputation for honesty and ethics crucified by false and misleading statements from their industry mouthpiece, the IMA.

“Rather than tackling industry failings and embracing change the IMA continues to harm the UK investment industry and treat British investors with distain. Continuing to deny investors fundamental rights and being treated fairly and with respect must not be left to deeply conflicted industry trade bodies.”


Posted in FSA, governance, life insurance, pension playpen, pensions, Retirement, steve webb | Tagged , , , , , , , , , , , , , , , | 4 Comments

Tis’ the season to get merry! Pension Play Pen Parties tonight!

mother Christmas


Deck the halls with bells and Holly!

Fancy a Carol this Christmas?


Holly and Carol have a particularly hard time at this time . They are decked and sung and  the butt of too many gags.

All the best jobs go to us guys- Rudolf (red nosed) , Santa (kissing Mummy) not to mention assorted elves, shepherds and wise men.

The institutional sexism of Christmas goes unchallenged. Mother Claus is left basting the turkey , as back-room as Mary in her crib.

Attempts to replace Christ with the X-factor (as in Xmas) are unnecessary, for all the plangent homilies on “thought for the day” advent is a glide-path to the debauchery of the Christmas break.

Let’s face it , we see Christmas as an opportunity for the Lords of misrule to reassert the ancient barbaric sexist tradition of the office party, the 24 hour mega-binge of Christmas day and the extended hangover that culminates in the mother of all piss-ups- New Years.

Christmas is what we do after a year behaving ourselves.  But can we please move on! I want a merry Christmas but I don’t do Dickens!

I do the Santa Brand Book


And when I say that the Pension Play Pen is having its Christmas Party tonight in the Counting House from 6pm (usual Gallery room at the back)….

I mean that I will be standing at the bar, buying anyone a drink who cares to turn up. And we will drink and sing and flirt and do those stupid things we don’t do in the other 11 months (well not much).

And we won’t regress into some Victorian parlour!

We do these things because that’s what Christmas is about. I don’t care about the religious framework, I don’t care about the other 11 months of well-measured and well-governed respectability. I want my Christmas to be a riot!

And  I want to give it back to the women. I don’t hold with this nonsense that sees the assertion of Victorian values (e.g . women do the work, men get all the fun). I want Carol and Holly putting sticking it to us grinches.

So my pre-Christmas resolution is to have fun, share fun and make it fun for the gals! I’m going to start wrapping my own presents, topping and tailing my own sprouts and I’m going to make damned sure that the women in my life get as much of a holiday as I do.

The Pension Play Pen party will toast the the women (and the men) who have made 2014 so great.

So if you are in the City tonight, before you go home, make your way to Bank, and let’s have a knees up!




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It’s not pensions that are rubbish- it’s the way we picture them



How google pictures St Andrews day today – so easy!


I spent some time last week expressing my dis-satisfaction  with the DC Governance and the irrelevance of most DC trustees. It is easy to throw stones….

What is also needed is someone to mend the greenhouse to make it fit to nurture..

We need to find a way of talking about our pension plans which makes sense to the people who use them and depend on them to convert pension saving into pension spending.

I often hear people say that if we could only get rid of the word “pension”, it would be problem solved. It wouldn’t, the problem is not with the word but with “confidence”, if people were confident they were in a good pension , then the’d be proud of the word.


I’ve been looking for an extended metaphor (a conceit) for inspiration. I’ve landed upon the motor vehicle as my metaphor.

There are three essential properties of a car that need to be right; chassis,engine and steering.



Without a sound chassis and associated bodywork, a car can take you nowhere. The chassis has to be of sound construction and durable. The pension equivalence of a chassis can best be described as the service superstructure.



The engine of a car is what drives performance, an engine should have good fuel economy and should meet the needs of those who drive the car. There can be many different types of engine. The pension equivalent is the investment mechanism.



The consul of the car that comprises the wheel,gears, pedals and dashboard enables the driver and any passengers to control the vehicle and enable its progress to the destination. The pension equivalent is the member interface between provider and member.

Whether the vehicle in question is a single seater or a charabanc with many passengers, this conceit holds true.

Rather than think of a pension as having 31 governable characteristics,  we should think of it as a vehicle that gets people from A to B in a variety of different ways.


We think we can measure the suitability of a vehicle in six different ways

  1. Its cost- is this vehicle vehicle “value for money” in terms of initial costs and ongoing servicing.
  2. Its performance – does it perform as expected (whether a Lamborghini or a mini)
  3. Its steering – does it give necessary control to the driver and/or passengers.
  4. Its chassis – is it of sound construction so that it securely carries driver and passenger
  5. Its adaptability – once it reaches its destination , can it be used for the return journey
  6. Its durability – will it stay the course and will it offer lifetime servicing.

Maybe I am over-stretching the metaphor , but I hope you get where I am going. The tangibility of a motor and our familiarity with them make it easy to relate to “what makes for good”.


Why we need fiduciaries – trustees advisers, IGCs


Most of us, cannot be so familiar with pensions; a pension’s value for money depends not just on what you can see – historic performance and quoted costs, but on a detailed understanding of fuel consumption (charges) and the capacity of the pension to continue to deliver.

Because this is hard, we need experts- fiduciaries, to assess and monitor value for money, ensure that administration is being properly carried out, check the calibration of the dashboard, check the brakes and accelerator, the steering and the mirrors that allow us to manage our pensions. Whether these experts are trustees or are members of IGCs or are our financial advisers, they have to do the same job, make sure we get from A to B without fuss.

These people who look after our pensions are our buyers, our service engineers, they do the MOT and make sure the car is safe. If they are not doing their job- it matters.

Which is why I think the job of being a DC fiduciary is too important to be left to people who don’t understand these things.

I do not see the standard of fiduciary care generally available to members of occupational DC schemes as very high at all. If we were to think of trustees as mechanics, I would not let most of them loose on my car, let alone put them in charge of a MOT centre.

There are over 40,000 occupational DC schemes in this country but there are not 40,000 occupational DC trustees up to doing the job.

We have been failed by these trustees in the past. The appallingly low numbers of retirees from DC trusts exercising the Open Market Option, the ridiculous charges levied on some investment funds, the creaking administration, the lack of member engagement and education and the failure to empower members to take decisions for themselves is endemic in occupational DC schemes.

It is no longer good enough for DC trustees to point to insurance company GPPs as “worse”, they’re not. By and large they are better. They had better OMO take up, provide better interfaces with members, are better administered and have investment funds that are much better governed.

I generalise I know, there are well governed occupational DC plans, but not many. And those few that are well run, cannot speak for the many that are not.

It is time that we got DC trustees to do their job- or shape out. We cannot go on tolerating failure in a part of the market that matters so much.


Posted in advice gap, pensions | Tagged , , , , , , , , , , , | 7 Comments

We need a Bus and a Lamborghini!


My friend Ralph Frank is very good at putting his finger on the problem. If he was a Doctor, I’d trust his diagnosis and I like to think of him with a stethoscope prodding around the body financial – listening for oddities.

Here he is on the contradiction between the Government’s direction of travel for “spending” and “saving”.

The freedom enjoyed by those over 55 will now be consistent with, and exceed, the opportunities those under 55 can access. However, the granting of these freedoms to the over 55s comes at a time when the same Government is focused on ensuring that there is a safety net, in the form of Auto Enrolment with a default investment option, for those under 55s who do not make decisions regarding their pension savings.

There are two fundamental dynamics in British politics that are grinding together like tectonic plates.

The first is the desire to “engage-educate and empower” people to take responsibility for themselves.

The second is the desire to act mutually for the common good.

You don’t have to be a political genius to see Steve Webb. Gregg McClymont, the Pension Regulator and the DWP as leaning towards collective solutions that provide mutual support. You don’t have to be a genius to see George Osborne, Mark Hoban , the FCA and the Treasury as seeing life through the different lens.

What has worked very well over the past five years has been a recognition by both political camps of the merits of the other. Gone the polarisation of politics of the 80s and 90s that saw a stand-off between “retail and institutional” ,”state and private”, “left and right”. Vestiges of those days are still apparent, I wrote about this in my blog about the AMNT and APPT”, but these are museum vignettes.

By historical accident, we have inherited a highly developed DC savings regime, powered by the weight of money from employers moving away from DB and accelerated by the development of auto-enrolment.

By comparison, we have inherited a derelict system of spending the savings. The system was constipated by annuities which blocked the development of proper systems of drawdown.

The drawdown product is weak; too expensive, over-dependent on advice and lacking the basic banking features we’d expect. The horror greeting the idea that people might be able to draw their pension from a cashpoint demonstrates how little empowerment there is  for those who want to exercise their freedoms.

The collective decumulation market is pretty well non-existent. If you are not getting a pension from a defined benefit schemes, your only pension will be from  from the state.

For the 90% of savers who took no decisions about how their money was invested before retirement, there is no collective alternative.

It is inevitable that a collective decumulation system will emerge to meet the needs of the 90%. As inevitable as the cost of drawdown falling and the means of drawdown improving.

In a wonder-world, we would all own Lamborghini’s , most older people would have a chauffeur (adviser) and petrol would cost 30p a litre (as it does in Dubai).


But we live in Britain where pump prices are still 125p a litre and as Simon Ellis points out

he OTR list price of the bottom of the range is £166k. If only we had an army of retirees with that sort of sum tucked away!

Pensioners have always been partial to busses, very social, not too racey – and cheap to use!


Whenever a right wing party takes over a council, the first thing under threat is “uneconomic bus routes”. Whenever a left wing party returns to power, it’s on the back of a promise to restore such “social” services to the elderly (who are very good at voting).

I see nothing wrong in a post-retirement landscape developing over the next five years that offers opportunities that encompass both chauffeured super cars and public transport (with other options in-between).

I hope that the angry brigade who are trying to derail collective decumulation will pipe down and I hope that the collectivists will allow drawdown to sort itself out without too much intervention (pricing caps etc).

As choices become more obvious  (bus-stops, taxi-ranks and super car showrooms) , the role of guidance will change.  Enquiries may become more sophisticated as the public become more aware of the new transport system. For the moment, we need to keep things very simple and ensure that nobody crashes!

With tolerance I believe the integrated transport system (we need) will emerge

Otherwise, to echo Ralph in his headline, we’ll be

travelling in opposite directions, on the same journey …

this is indeed

an accident waiting to happen

Transport system


Posted in pensions | Tagged , , , , , , , , , , , , , , | 1 Comment

Re-energising trusteeship (for a DC world)

before I get old




My recent blog pointing out that DB trustees tend to make bad DC trustees has gone down like a lead balloon with certain DB trustees.

I don’t think is surprising.

The next question is whether we can find a new kind of trustee who genuinely improves member outcomes.

In a recent article, Pinsent Mason’s Mark Baker argues that DC Trustees should be stating what their job is through the publication of a clear written statement of  their purpose.Mark argues this statement should be in terms of how the Trustees intend to improve member outcomes.

I think that such a statement, if intended only to provide trustees with legal”protection”, is of no use. The  statement of intent backed up by resolute “energised” action. Otherwise it becomes just another document filed under governance that nobody reads and is downloaded only when a negligence suit is in the offing!



It is generally accepted that the biggest influence on what comes out is what goes in. There are now only two sources of contribution to a DC scheme (there used to be a third- national insurance rebates).

Source one is the contribution of the sponsoring employer. I have yet to hear of an instance of a DC employer lobbying employers for greater contributions. I have rarely heard of a DC trustee negotiating with a sponsor for a salary sacrifice arrangement where the majority if not all the NI saving is paid to the member rather than retained by the member. How many DC trustees engage with the sponsor on funding issues with the rigour with which negotiations with employers are carried out over DB recovery plans?

Source two is the contribution by the member. This is a different salary sacrifice, it’s a sacrifice of immediate gratification in exchange for long-term security; it’s the “spend on your future not your next night out” pitch.




The job of a trustee is to engage-educate and empower. I once saw a man engage an entire nightclub in Maltby South Yorkshire with a saving presentation.

He had a large wooden CASE which opened on hinges into two display. When the man opened the first display there was an array of topless ladies

Right- when you finish work, d’you want out of that?

The second display was of £1000 worth of £5 notes pinned to the other side of the case.

Well lads, that means you’ll have to have plenty of this!

Getting engagement does not have to be subtle- it has to be effective and immediate- you have seconds!



If you’ve got people’s attention , you have a marvellous thing- their time! Don’t waste it, you have only a minute or two to make your point.

Why is your audience not saving ?

Can’t they be bothered?

Do they know how?

Do they have prejudices agains the savings vehicle?

In my experience, if you can make it easy to save , if you can give them an idea of how much to save and if you can address their (probably legitimate) prejudices against saving into a long-term vehicle – a pension plan – you are winning.



In the 1990s I was a consultant to a large trust based DC plan whose trustees had worked out that the overall contribution structure wasn’t going to meet member expectations (comparable benefits to the old DB scheme). They agreed matching contributions with the employer which -if fully taken up- would then have given general comparability.

The Trustees also got a budget to employ me to go to the various sites to talk to members. Things were going well until we got to a northern brickworks where I was instructed to do my presentation outside. It was snowing and I objected. I was told by the site managers that his workers were on an hourly rate and he was paid on productivity. He wasn’t going to risk losing some of his bonus for the sake of some “pension rubbish”.

I made a complaint to the Trustees about this, the trustees took it up with the site manager who was reprimanded. We re-did the session and got good results.



For most people the next step they will take after hearing an engaging, educational presentation is towards you.

What do I do now?

If we can give an immediate action to people that can get them saving (more), then that is worth a thousand modellers.

Sure there is signposting to fancy kit and yes- we should encourage people to do the right thing the right way. But for most people, a simple form which asks them to commit to a new level of saving (either a % of salary or a nominal sum) , is the critical next step. Deliver it to their phone, or put it in their hand but make sure you get it to them as a next step!


Of course there are many other things that trustees should be doing.

They have responsibility for making sure the money invested works for their members and not for the 13 levels of intermediaries John Kay talks about.

They have responsibility for ensuring people in the DC plan know how their savings are growing so they stay engaged.

They have responsibility for making sure that the back office works so that people’s money doesn’t go astray

And they have responsibility for ensuring that  help is on hand when people move jobs, retire or die.


DC Trustees who took on a job that had KPIs based on improving employer contributions, maximising employee engagement, improving financial education and empowering members to take their retirement planning into their hands would get my whole-hearted support!

If I went to a trustee conference where I saw people speak with the passion and commitment of that man in the Maltby minor’s club then I would applaud.


Sadly, many employers have given up on DC Trusteeship, they have gone the contract based route because they cannot see the point of DC trustees. I say sadly because I have seen Trustees who have engaged their members in a way that an insurance company or even an employer sponsored pension committee cannot.

The point of trustees is that they are independent of employers, they act for the member not the boss. They do not act for themselves.

But most of all they ACT. Turning up for four trustee meetings a year, reviewing various reports from service providers demonstrating they’v hit their SLA, does not constitute ACTION.

For some time I have been pointing to PICA statistics that showed that historically the take up rate of the open market option on trustee controlled DC benefits was only 25%, this compared to over 30% where an insurance company controlled the contract.

In all the time I have campaigned for greater ACTION from Trustees, I have yet to have one trustee engage with me on this issue.

DC Trusteeship has failed and is failing. There is insufficient energy among DC Trustees to justify their existence.

What is more they account to no-one, not to members or employers. They assume they have a right to be there and when that right is questioned, they get angry.

Well, I for one, would like to see anger from DC Trustees, I’d like to see something that equated to passion rather than the torpor I’ve witnessed over annuities, or member contribution rates, or contribution negotiations with employers or indeed over the fund governance issues which have led to the 2015 DC reforms.

We need energy and enthusiasm from DC trustees, we need a clear sense of purpose and above all we need effective ACTION. All of these things are lacking in the behaviour of most trustees I meet – I say most- I do not mean all.

There are according to tPR, some 48.000 standalone DC plan operating under employer trusts. Can we really point to more than a couple of hundred where trusteeship is working successfully?

pension lamborghini


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So what’s the point of the DC trustee?



It’s the first rule of trusteeship- if you can’t measure it – don’t trust it.

It’s the right of anyone who has their own pension pot to know how much they are paying for the management of their money. If they cannot get this information or make sense of the data, themselves, they should have people to do this for them.

I find it hard to tell a worn tyre from a good one, I need someone I trust (Kwikfit) to tell me when I need a new tyre (and fit it).

As for my retirement pot, I need to know it is being managed well. I need the people at the Legal and General Independent Governance Committee to tell me that the money invested in their multi-asset fund is being managed efficiently and yes- I want to see the numbers! I want to know how it is doing against its targets and what I am paying in the way not just of upfront charges – but in management costs.

So I would have thought the first thing that a DC trustee should be wanting to do, is to match the people in the insurance company IGC and tell me what I was paying, not just in absolute terms, but against some relevant benchmark. They need to know if – relative to the best in the market- the fund(s) they are offering to members are up to scratch.

But this viewed in the same way by the trustees of DC schemes – or so it would seem if you read Stephanie Baxter’s piece in this week’s Professional Pensions.


In a very cute piece of journalism ,Baxter gives certain commentators just enough rope to hang themselves, and then sits back to enjoy the show.

Let me counterpoint a comment in the article against her opening remarks!

“The role of defined contribution trustees is getting increasingly demanding as policymakers seek to ensure that savers get a good deal from pensions.

A major part of this is ensuring that charges and transaction costs are fair….

Trustees will face an even greater challenge when they are handed responsibility for assessing and reporting on how they have achieved “value for money”

Here is the response from a senior professional trustee and a member of the NAPF’s DC Committee

It’s something the NAPF, IMA and the Financial Service Authority (FSA) have all tried to do and they’ve all failed… it’s almost as if the DWP is saying that “where everyone has gone and failed, you trustees now have to succeed”.

This is crazy stuff! The point of the FCA and DWP’s intervention in the market is precisely because of the systemic failure of these noble bodies to bring the people who manage our money to account.

The FCA and DWP have the power to force fund managers to disclose information and the resource to create the tools which trustees can use to properly measure value for money. Trustees should be calling for these powers to be exercised, for these tools to be made available to them. Past failure should not be a guide to the future!  Remember…

If you can’t measure it, don’t flipping trust it!

Being a trustee is not easy, being a DC Trustee is particularly tough- you are responsible for the outcomes of your members.

DC Trustees are currently walking away from any responsibility for the decisions being taken by members at retirement (regrettable but understandable).

But to suggest that “the onus on trustees to acquire detailed data on transaction give greater disclosure on headline transaction costs and ..provide information on the outcomes that these transactions produced”  significantly ups the ante for trustees is a flagrant abnegation of responsibility. The onus to get members VFM has always been there, past failure should not be a guide to the future..

Would my man from Kwikfit allow me to drive on dodgy tyres because he had trouble with a wheel-nut?

The Pensions Regulator has been calling for this kind of governance since it published its “value for money”formulation in the “good DC outcomes” paper in January 2011. This blog has been calling for better disclosure, for the introductions of benchmarks and for Trustees to step up to the plate since 2009. Here we are 1350 blogs later with a senior DC mandarin moaning

“It’s not something trustees have done in the past”

As Captain Mainwaring might have commented

“shut up Pike, don’t you know there’s a war on”.



I am beginning to question the role of DC trustees. If doing the job is too hard and we have to employ professionals, why don’t we give the fiduciary role to IGCs and be done with it.




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Cass calls on fund managers to be paid on results.




Dr Nick Motson of Cass Business School has issued another broadside at the funds industry who have been dilatory at best in responding to consumer pressure to better align its fees to the value it brings to consumers.

Cass’ idea is a simple one, fund managers would be paid on performance against what they said they would do. A sophisticated version of “no-win, no-fee”. The argument is that the good ones would be paid more and the poor ones less. The poor ones would have to leave the market- to everyone’s relief.



But it’s not as simple as that is it Justin?

Listening to Radio 5 live, I heard my red braced school-chum Justin Urquhart-Stewart defending the fund industry’s practice of charging people a % of funds under management rather than linking fees to the performance or underperformance of the fund – relative to what that fund set out to do – e.g. the benchmark.

This is of course, entirely missing the point – deliberately some would say!

Fund managers can (and should) be paid performance fees even if the fund shrinks!

The example was given of a fund manager investing in Japan who would have seen his fees fall over 20 years because of the capital losses in the Japanese Stock market. As I understand it, an active fund manager who had seen a fund fall by less than the benchmark (typically a Nikkei index) – would get paid more than a passive manager who just delivered the market return. The example is again irrelevant.

The point of aligning fees to performance against the stated aim of the fund is that it does not reward the 80% of active managers who consistently fail to bring home the bacon and bring some risk to the business of active fund management – to the managers!

But active managers should not be rewarded for not doing what they said they would

At present, anyone can set up as an active manager and charge high fees (1.5% of the fund is typically quoted as the RRP). But so long as the fund continues to benefit from the support of its uni-holders, the manager continues to rake it in whether he or she does well or badly.

Which makes for an appalling lack of incentive on the manager to perform. It makes for lazy behaviour (see the stuff below on charges) and it makes for a culture where the creature comforts of managers come before the returns of the investors

On the radio, the question was asked -

“why do investors stick with active fund management”.

The answer may lie in the difficulty of moving money, it may lie in the expense of moving money and it may be because investors are trying to buy and hold- as Warren Buffett tells them to.

Whatever the exact reason, investors are doing for fund managers, what fund managers need and want, giving them the long-term horizon to buy and hold for value. The question we should be asking active  managers is why they are doing so little to reward the people who are being loyal to them.

One thing that is for sure, is that all the cards are in the active managers hands and we can see (below) that the active managers are not too keen to show their hand to people who ultimately own the money.

This is known as fund management’s “asymmetry of information”.

Justin blithely spoke on Wake up to Money this morning about the days when fund managers were obliged to churn their portfolios every year to generate extra commission for the managers. Apparently these days are gone. This was another (successful) ruse of Justin to throw the pursuing journalist off the scent.

For, within the past two years, research by Dr Chris Spiers, the new MD of KAS Bank, showed some active fund management houses were still churning portfolios to a point that it was nigh on impossible to justify the transaction costs involved by the potential for higher performance.

Not only was Spiers’ research suppressed, but the fund management industry, led by the Investment Management Association, continue to suppress information on the portfolio turnover rates  (churn rates) of active funds.

Performance fees and full cost disclosure go hand in hand

The issues of linking active performance to fund management charges and the disclosure of the true costs of investing are co-joined. Many active managers have such high transaction costs (resulting from poor execution and over-trading) that they become serial underperformers no matter what the skill of the managers. It’s like trying to win a horse race with Fatty Arbuckle on its back!

For the fund management industry to own op to the true costs of active management, it would have to expose itself to the criticism of the journalists on Wake up to Money that allowed Justin to kick the issue into the long-grass.

There would be nowhere for fund managers to hide.


Earlier this year, the Pensions Institute issued a report that claimed investor returns are being hurt by hidden costs that are at least as big as the visible costs in actively managed funds. Here is the meat in their sandwich

Asset managers should be required to reveal the full costs of active fund management to help investors see the full drag on their returns.

The Pensions Institute at Cass Business School has published a white paper calling for asset managers to disclose all visible and hidden costs which are ultimately borne by investors.

Research cited in the paper suggests that concealed costs – such as bid-ask spreads and transaction costs in underlying funds – can make up to 85 per cent of a fund’s total transaction costs. The remainder is taken up by visible costs such as commissions, taxes and fees.

Director of the Pension’s Institute, Professor David Blake, said: “No good reasons have been put forward for why all the costs of investment management should not be fully disclosed. They are after all genuine costs borne by the investors.

“There is little point in requiring transparency where the reported measure for ‘costs’ does not include all of the costs, or in the short-term, as many costs as could currently be reported on an efficient basis.

“If total investment costs are not ultimately disclosed in full, how can there ever be an effective and meaningful cap on charges, and how can active investment managers ever asses their true value added?”

Costs could be reported in the form of a ‘rate of cost’ – which could be deducted from the gross rate of return to give a net rate of return – and as a monetary amount, which could be compared with the monetary value of the investor’s portfolio.

The paper suggests a staggered approach could be taken in the lead up to the full disclosure of all transaction costs.

In the initial stage, investment managers should be required to report all visible cash costs involving commissions, taxes, fees, custodial charges and acquisitions costs, together with the hidden cash costs of bid ask spreads, transaction costs underlying funds and undisclosed revenue.

“All these indirect costs relate to the efficiency of the investment management process and all good investment managers should have an estimate of their size,” said Professor Blake.

Once investment management firms have the right IT systems in place, non-cash costs should also be reported comprising of market impact, information leakage, market exposure, market timing costs and delay costs (see below).

Professor Blake added: “The hidden non-cash costs would be more challenging to calculate, since they involve the analysis of information that might not necessarily be automatically captured by the investment manager’s own systems. Nevertheless, the issue is whether fund manager systems could be configured to generate similar information on a cost-effective basis.”

Visible cash costs

  •   Commissions
  •   Taxes
  •   Fees
  •   Custodial charges
  •   Acquisition costs

    Hidden cash costs

  •   Bid-ask spread – of the hidden costs, the simplest to understand is the bid-ask spread that a dealer or market maker charges to buy and sell a security or an investment bank charges for, say, a currency hedge. The total spread costs incurred during the year will be related to the annual portfolio turnover.
  •   Transactions costs in underlying funds – if the investment manager buys funds on behalf of the investor, the transaction costs incurred by these funds are not reported even to investment managers, but are still paid by the investor in terms of a lower return.
  •   Undisclosed revenue – the investment manager might also benefit from undisclosed revenue, such as retained interest on underlying cash balances or retained profits from stock lending.

    Hidden non-cash costs

  •   Market impact – refers to the reaction of the market price to a large transaction, such as a block sale of securities. The market price will fall in the process of selling the securities and the average execution price will be below the pre-sale price. If the investment manager attempts to execute a large transaction in smaller batches – e.g., by advertising trades to attract buyers or seeking indicators of interest – this will lead to information leakage and will have broadly the same effect as market impact.
  •   Market exposure – refers to the fact that an investor is exposed to what is happening in the market during the period that the transaction is taking place. Suppose the investment manager is planning to buy securities for a client. The client is exposed to the risk that the market price rises before the transaction is executed.
  •   Missed trade opportunity or market timing costs are the costs associated with not executing a transaction at the best possible price. Finally, there are delay costs associated with waiting for transactions to complete (e.g., holding the purchase price in a zero-interest account). Some of these non-cash costs can be hedged against – e.g., those relating to adverse market movements – but the cost of the hedge then becomes an explicit measure of the hidden cost.

    Memorandum item:

On 13 May 2014, the Financial Conduct Authority criticised the investment management industry for not reporting charges to investors sufficiently clearly. In particular, it criticised the annual management charge (AMC) as failing ‘to provide investors with a clear, combined figure for charges’. Instead, it recommended the use of an ongoing charges figure (OCF) which, in addition to the investment manager’s fee, includes recurrent operational costs, such as keeping a register of investors, calculating the value of the fund’s units or shares, and asset custody costs. In other words, the OFC measures costs that an investment manager would pay in the absence of any purchases or sales of assets and if asset markets remained static during the year. The next day, on 14 May, the Financial Reporting Council accepted the Investment Management Association’s (IMA) proposal to report not only the OFC, but also all the dealing costs and stamp duty paid when an investment manager buys

and sells assets in the fund’s portfolio. IMA chief executive Daniel Godfrey said: “Our new measure is simple, easy-to-understand and covers every penny spent by a fund…It will give investors confidence that nothing has been hidden.” Unfortunately, even with the new information reported, there will remain costs that are hidden.

Fortunately, the FCA are on the case, they will not be fobbed off by stockbrokers in red-braces- no matter how charming!

The days of active fund managers getting away with lazy practice and in extreme cases malpractice, have to come to an end. Full disclosure of funds will be necessary for the IGCs from next year, and if the information is in the hands of the insurance platform managers, it has to be put in the hands of those who run institutional pension funds and individual portfolios of funds- soon after.

When the public sees the cost of active fund management, fund by fund, they will be able to decide which active fund managers are really doing their job on the hard evidence of cost control and performance against the stated ambition of the fund.

This will be a better basis than the current practice which appears to be based on the publication of ever more extravagant advertisements professing the prowess of fund managers and based on little more than pretty pictures.

And so say all of us , at….

hi res playpen


Posted in accountants, advice gap, David Pitt-Watson, dc pensions, pension playpen, pensions | Tagged , , , , , , , , , , , , , , , , | 1 Comment

The fine line between “patronising” and “paternal”.


Last week Tom Mcphail (Hargreaves Lansdown) had a go at Teresa Fritz (financial Services Consumer Council and MAS) about the need for advice.

You’d expect the two to clash, FSCS and MAS are not much loved by advisers who see it as an incompetent policemen and Hargreaves are every advisers least favourite adviser (mainly because they are usually right).

The Money Marketing version of events is here .

I’ve disagreed with Tom a few times recently – but I’m right with him here and I wrote to thank him for standing up for people who want to do things themselves.

He wrote back this morning

Lots of people need help managing their money, some need advice; a minority need no help at all. By suggesting everyone needs to be told what to do, the FSCP is obstructing the important work which should be going on right now to establish good minimum standards in how we engage and communicate with the millions who just want a bit of help.

With Hargreaves’ Vantage product, set to scoop the pool of non-advised money, there will be plenty of cynics muttering “Tom would say that”, but that is precisely the point.

If advisers aren’t happy with Vantage, there is nothing to stop them setting up an alternative.

I’m watching Saturday Kitchen as I write this so I’m being dragged into a culinary conceit.

Recipe for a successful drawdown service

  1. Find yourself an amenable bank or insurance company to provide you with a personal pension licence

  2. Get yourselves a funds platform – probably from the above (but other platforms are available)

  3. Find a sensible administrator capable of managing records and providing feeds to your customers so they can engage, get educated and be empowered to manage their drawdown)

  4. Organise your interfaces so customers get on with things as they see fit, contacting you when they need to.

  5. Market this to your clients and anyone else’s clients and to all the employers and trustees who have lots of staff and members who need your help from April 2015.

All this need not be very hard, you only need to understand the way people like to spend their money and be expert in the technicalities.

Alternatively you could join First Actuarial and enjoy the journey we are on!



I know and like Teresa, and good consumerists such as Mick McAteer. Tom says of them “They are actually a danger to the financial wellbeing of this country” I  know where he is coming from.

Yesterday I wrote about Nutmeg and and how we can use the new technologies to engage, educate and empower people to manage their income in retirement.

I will keep you informed about our journey. I suspect we’ll be calling off at various stops near you and I wouldn’t be surprised if our terminus is CDC central – where a lot of defaulters will pull in (or hit the buffers)!

I hope that Tom will spend some of the journey with us, we should be grateful that he spoke out at the reading of the Pension Taxation Bill (as we did at the Pension Schemes Bill).

I am proud to associate the names of Hargreaves Lansdown and First Actuarial who may be on differing trains and maybe parallel rail tracks – but taking people to the same (good) places.


me worry



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Is there a place for digital advice in pensions?


hi res playpen


I spoke yesterday at the Pershing Conference in Westminster. My pal David Calfo who is managing many of the seismic changes at the University Superanuaition Scheme  spoke with me and the session was chaired by Pershing’s Gerard Wellesley. It all went rather well.

The success of our session, which discussed the role of the IFA in 2015 in helping people make use of their new pension freedoms, was down to what came before, a brilliant debate between Nick Hungerford (CEO of Nutmeg) ,Emily Haisley, behaviouralist at Barclays Wealth and Michael Hall of Deutsche.

I tweeted during their debate



and indeed the debate challenged the role of the “analogue” adviser with a vigour that was both fresh and disturbing. Nutmeg have set out to change things and Hungerford’s approach is highly disruptive

Looking at my tweets I read

I hope these spontaneous remarks posted from the floor give an idea of the dynamic that was created.

It seems to me that for Nutmeg, and this goes for Pension Play Pen , the challenge is as much from its peers as from the scope of what it is trying to do.

If you’ve got time , watch Nick in action- this video is really only worth watching from minute 20 onwards – there’s about an hour of it

What’s scary is that Nick isn’t trying to be disruptive, he doesn’t seem to be trying at all!

In fact, in super-confident Nick Hungerford’s world, things happen his way – he just lives in a different paradigm.

I’ve no doubt that Hungerford is making sense to the people who don’t do investments (as well as people like me who do).

Pension PlayPen like Nutmeg uses what Nick called “rules based algorithms to get good outcomes”. Our rules work for the 90% of people who want to be guided to a decision that makes sense, not to the 10% who want to forge their own decision making process.

Nutmeg like Pension PlayPen puts financial decision making in second place to living and working.

Nick seemed quite happy for his team to be chatting on a webcam sitting on the side of someone’s screen while they got on with whatever work they were doing.

And I was struck by a brilliant observation by Emily Haisley, “people are more honest to a computer than face to face”.

I think there’s a real deep truth here, we are more candid with the machine, even when we know there is someone or something on the other side of the screen analysing what we input.

The motto for the future must be “engage,educate and empower” and this is what digital technology is doing for the new generations of people coming into the workforce and for people like me , tapping into the power of the web.

We are on the edge of a revolution in pensions where up to 400,000 people a year are going to be asked to manage their financial affairs in later life with freedoms unimaginable twelve months ago.

We need to play catch up to get to people, we need to use the new technologies in a way that Nutmeg and Pension PlayPen are pioneering.



nutmeg 2

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I don’t normally do press releases on here, I will make an exception here.

People are embarrassed about money – when it’s their money they are talking about. The taboos about debt, wealth and financial planning are real and we need to understand them, if we can get on with helping people to manage their money better.

So over to L&G…

New research from Legal & General reveals two fifths of the population (41%) say money is one of their biggest stresses, yet nearly half (46%) say finances are a personal matter not to be talked about. As a consequence of this social taboo, people are failing to plan for their financial future, and having to cope with money worries on their own.

The effects of money worries include: increased pressure on family life (39%); anxiety (39%); bad moods (29%); and sleepless nights (26%). A third (34%) of those surveyed say money is their biggest stress, yet the same amount (36%) avoid talking about their finances with friends and family because it isn’t the “done thing” – rising to over two fifths for those aged 55+*. 

Against a backdrop of an aging population, where people may have to work for longer, and the Chancellor’s recent changes to annuities, people are having to take more responsibility for their long term financial security. Financial planning has become more important than ever, yet many are failing to take action.

Legal & General’s Taboo Tent has been touring the country, speaking with members of the public to get to the bottom of why talking about money is such a taboo. The Taboo Tent uncovered the nation’s top taboos and challenged people to take their first step towards financial security by holding awkward financial conversations for the first time.   

The top six taboo conversation topics** are:

Between couples Between close friends With parents 
Past romantic relationships (45%)

Annoying habits (43%)

Weight (38%)

Spending habits (36%)

Death (34%)

Debt (32%)

Debt (46%)

Salary (45%)

Annoying habits (44%)

Savings (41%)

Family scandals (41%)

Politics (36%)

Debt (35%)

Death (33%)

Annoying habits (32%)

Family Scandals (31%)

Past romantic relationships (30%)

Spending habits (30%)


Annie Shaw, consumer finance champion and Taboo Tent host
, said:

As a nation, we simply don’t like to talk about money matters. It’s a social taboo that makes many people feel awkward. It’s not helped by the fact that financial planning can be a minefield of confusing jargon and alien terms that are difficult to understand. But talking about money doesn’t need to be a taboo. A conversation with someone who can explain the facts in plain English can go a long way to help people understand their finances and plan for the future.” 

Legal & General Assurance Society executive director and chief executive John Pollock, said:

“Taking the time and having the confidence to talk about financial planning is hugely important – not just for financial reasons but for our wellbeing too. Despite this, one in five people would prefer to avoid talking about their finances and leave their financial planning to chance. We need to break this social norm and start talking about money. No matter what the situation or stage of life, achieving financial security begins with having the right conversation.”   

The research shows that money taboos vary depending on the social situation. For close friends, salary and savings are awkward conversation topics, for partners many find it easier to lie about their finances altogether than tell the truth. Talking about debt is the biggest taboo when with parents. [See below for full breakdowns]

Between couples Between close friends Between parents
Over one in 10 (13%) of those in relationships say they are more likely to lie about their finances than any other topic with their partner, rising to over a fifth (23%) of people aged 25-34 years old.

White lies that have been told include: how much people earn (15%); save (21%); how much debt they’re in (22%); and hiding credit card statements (11%). 

Many say their partner has no idea what they have saved (18%), how much they earn (8%), or how much debt they are in (12%).

One in 10 (10%) say they do not feel comfortable discussing debts with their partner.

Only 10% of people say they talk regularly about their personal finances with their friends.

Salary is one of the most avoided conversations with 61% of people saying their close friends have no idea how much they earn.

Of those who have discussed the topic with friends, 16% admit to having told a white lie about how much they earn.

A quarter (25%) of people say they never set time aside to talk about their finances with a parent, and over a fifth (22%) say they do not feel comfortable talking about debts with their parents.

Perhaps as a result of this, over two fifths (43%) say their parent does not know how much debt they are in, and nearly half (49%) say their parent has no idea how much they have saved either. 

White lies that have been told include: how much people earn (15%); save (21%); how much debt they’re in (22%); and hiding credit card statements (11%). 

Many say their partner has no idea what they have saved (18%), how much they earn (8%), or how much debt they are in (12%).

One in 10 (10%) say they do not feel comfortable discussing debts with their partner.Only 10% of people say they talk regularly about their personal finances with their friends.

Salary is one of the most avoided conversations with 61% of people saying their close friends have no idea how much they earn.

Of those who have discussed the topic with friends, 16% admit to having told a white lie about how much they earn.A quarter (25%) of people say they never set time aside to talk about their finances with a parent, and over a fifth (22%) say they do not feel comfortable talking about debts with their parents.

Perhaps as a result of this, over two fifths (43%) say their parent does not know how much debt they are in, and nearly half (49%) say their parent has no idea how much they have saved either. 

The lack of conversation around finances means many are not planning for their financial future. Over two fifths (41%) of people only talk about money when they have an immediate worry and a fifth (21%) prefer not to worry about money at all, as they take the approach it will ‘all work out’. 

Encouragingly, the research shows two fifths (41%) of people say they are comfortable talking about money and their financial matters, and (33%) say they have long term financial plans in place and feel good about their finances as a result.

To help more people have financial conversations for the first time, Legal & General is providing information and top tips on its website to help individuals get started. With a fifth (22%) of people saying they find financial planning confusing and have no idea where to begin, Legal & General is helping people get closer to achieving financial security:


Posted in pension playpen, pensions, Retirement, welfare, with-profits | Tagged , , , , , , , , , , , , | Leave a comment

Pensions are yours to spend – but how do you get to the shops?

Why shouldnt I by it

Ours to spend!

If I were to give you £100,000 and tell you that that was to bide you over to the end of your life you might initially be excited – you might then become apprehensive and you might eventually give the money to someone else for management,

The pension windfall that many of us will receive at 55 is just such a gift. True it is our own money, saved either from our own resources, in lieu of pay or in lieu of SERPS/S2P. But it is money that has never before been real (as in realisable).

It is money that has been in a wrapper called “pension” with a “not to be opened till 55 and then without the express permission of HMRC/financial adviser/pension provider”.

It hasn’t really been our money- it’s been making someone else money – but it’s not like our house or our stamp collection or even the shares we got when we worked for zyz. It’s not ours to spend.

time to spend

If you cant trust anyone – do it yourself!

If I was George Osborne , I would be marketing the whole pension freedoms project under the “yours to spend” banner. If, as Hargreaves Lansdown predict, 200,000 cash out their pensions next year, it’s not just that they want to spend their pot, it’s that they want their pot back from the control of others -trustees, insurers – even SIPP managers.

They might rather do it themselves, pay the tax but not be beholden to someone they don’t know, trust -let alone like. Let’s face it, have you ever seen a financial adviser or pension fund manager portrayed sympathetically in the mainstream media, the last one I watched on Coronation ended up driving his family off the edge of a dock!

In a brilliant blog (here)  Mark Scantlebury and a group of friends explore why the people who run and sell pensions are so distrusted. I won’t rehearse the same old ground. When I went to the Pitch a couple of weeks ago, one of the judges- a serial entrepreneur fingered me after my pitch

you guys in pensions have ruined two of my businesses, I’m not going to let you do it again

I asked her how she was going to avoid pensions with her sixties looming..

I’m going to do it myself

So how can we help people do it better?

I imagine the journey people take in retirement as needing some kind of transport. The alternative is you spend all your money on day one and never go anywhere!

And the choice of  the form of transport

- communal (CDC or annuity),

or taxi (advised drawdown)

or hire-car (self- advised drawdown)

is up to the people taking the journey.

To extend the analogy, until recently the only way to travel was by barge; the annuity got you there slowly and safely, but it was a little boring.

barge 2

I’m trying to imagine what is needed for my new transporters and I’ve decided their are four essentials

  1. There must be a trusted brand providing management
  2. The vehicles must be properly powered (with the right investment options)
  3. The vehicles must have sound chassis- (properly administered)
  4. There must be passenger information
  5. There must be a driver – at the controls


A trusted brand…

Supposing that a new and trusted financial brand – Virgin Money – Metro-Bank – Money Saving Expert – Pension PlayPen, decided to set up a product that helped people organise their finances to pay themselves an income for life- what would it look like?

Properly powered…

Well to begin with – there would have to be an investment platform- either an insured one or one of the new funds platforms like Ascentric, Nucleus or Hargreaves .

A decent chassis…

Then there would have to be a back-office system that  kept a record the state of play-

  • how much money was left in the pot?
  • what the tax position was (lifetime allowance, annual allowance, income tax etc)?
  • how had transactions been processed ?

Passenger information…

There would have to be a dashboard for people using the system to help them understand what was happening.

The key gauges would look like those on a car;-

  • a gauge showing the fuel burn and whether it was higher or lower than expected;
  • a gauge showing how far it was from the expected destination- sadly  the anticipated date of death
  • and a final gauge showing the likelihood of getting to the end without running out of petrol

Other gauges would show how close someone was to exceeding their lifetime allowance, what headroom they had to top up their pot with new contributions and where the person was relative to their current income tax bands.

For someone to be able to the pension transport system they would, at the very least , need to have the investment engine, the administrative chassis and finally the dashboard to see how things were going.

Someone to drive..

But there is one other aspect to this vehicle that is need, a system of controls that allow the vehicle to be driven. These must include a steering wheel to determine the direction of travel (let’s call this the fund selector), a brake to ease off the speed and an accelerator to speed up. Let’s leave any more complicated controls aside.

Pension Freedoms = Your choice of transport

Transport system

I believe that before too long, anyone who has a pension pot will have access to the transport system and the choice they will have will depend on the amount of control they want.


For some they will want to let the “train take the strain” and will be happy to let all investment and income decisions be taken by a trusted third party. This could be set up by a union or a trusted financial brand (MoneySavingExpert, Pension PlayPen)! They would set the burn rate on your money, maybe by looking specifically at your health or maybe treating you as one in a pool of all the people on the train.

For some, a taxi- driven approach will be “deemed more appropriate”. So an adviser will be brought in to drive the car and manage the fuel efficiency to make sure you get to your destination without running out of money. People will be able to find taxi-drivers at the MAS taxi-rank- sorry Directory


Finally , there will be dedicated enthusiasts determined to drive their own pension car. It may not be a Lamborghini but it should be a robust vehicle with an MOT provided by an IGC or similar . If you want self-drive, a map, instruction manual and a proper car is about all you expect.

We have the drivers – we don’t have the vehicles (yet) !

We do have taxi-drivers, they are called IFAs, we do have train-drivers- they are currently managing DB schemes but they could as well switch to running CDC options for those who want the train to take the strain.

Those who want to drive their own cars have probably taken instruction. There are a small group of people (Emma Douglas called them badgers) who will take to the road without anyone’s help. Fortunately it is only themselves they can harm!


What we don’t have are the right pension vehicles – whether collective or individual which give all types of travellers the view of their financial future necessary for them to decide how much they want to do themselves.

So we approach April 2015 with a blueprint for the travel system of tomorrow, but not the infrastructure.


Can we manage  the queues while we build them?

Fortunately , the numbers taking decisions in 2015 are relatively few and they can probably sit a few months on the platform or car showroom or taxi-rank waiting for the right form of transport to show up.

But the problem will be impatience. Many will simply decide to take their money and run, (200k according to Hargreaves Lansdown). The longer we leave it to find the right vehicles  to take people forward, the more will simply take their money to their bank account and away from pensions.

We need to encourage people to come aboard!

If you’ve read this far, you’ll know that for most people , taking money from a efficient environment where there are tools to enable people to manage their pensions and put it into bank accounts where there is no help from the tax man or from experts, is a bad move.

There are exceptions, if you’ve got a low life expectancy or a very small pot and an unused personal allowance and/or a pile of debt, you are probably best spending your pot (as the Citizens Advice Bureau should tell you).

But most people have got more ambition with their retirement savings than to spend them day one, most people (70% according to Aon Hewitt) want a lifetime income – a pension – which supplements what they get from the State.

Pensions people should be manufacturing vehicles as you read!

If we believe we are up to the job of managing people’s pensions, we cannot sit on the sidelines and allow the money to seep away, we should be working with each other to build these pension vehicles.

By way of a “fantasy team” we might haveMartin Lewis  talking with Paul Bradshaw talking with Sue Applegarth talking with Steve Bee to create new products that win back the trust of the many.

This might sound fanciful and I guess it is . But there is such a great opportunity to get it right! We have to think outside the traditional box and find a new way to deliver – whether we call it CDC or collective drawdown, or synthetic annuity or individual drawdown or defined ambition.

The game changer is the transport system!

The game changer for the consumer will be the ability to do it themselves. Right now people know that their pensions are “theirs to spend” but it is one thing to have the vouchers, they need a way to get to the shops.



Posted in advice gap, pension playpen, pensions, Pensions Regulator, Personality, social media | Tagged , , , , , , , , , , , , , , , , , , , , , , , , | Leave a comment

Straight talking from the IMA on charges?


APTOPIX Britain RBS Protest

In one of the least incisive video interviews I’ve seen this year, here’s Ian Smith of Pensions Week quizzing Jonathan Lipkin- IMA Director of Public Policy Decision- on how the IMA and its members are facing up to the challenges of 2015. The 6 minute video is here.

The background

The IMA and its members are charged with disclosing the real costs to members of workplace pension funds of fund management. To do this, they needed to work out a formula that includes not just what is charged overtly to the trustees or managers of a contract based arrangement, but what is charged indirectly to a member’s fund (the hidden charges).

The worry within the DWP and FCA is that more you cap the overt charge, the more managers find ways of increasing hidden charges which erode the “Net Asset Value” of your pension pot.

So the DWP are requiring the disclosure of the hidden charges  by 2016 and making sure that those governing occupational schemes (trustees) and GPPs (IGCs) are able to see whether members are getting value for money from these additional costs.

IMA obfuscation #1 -talk about something else

The tried and tested way of responding to these kind of pressures is to obfuscate. This word means to cloud the subject in smoke. The particular smokescreen being used at the moment is to pretend that the asset managers are far too busy responding to the challenges of the budget tax reforms and their impact on the default funds which they operate.

Let’s be quite clear, this is none of the business of asset managers. Asset managers are here to provide asset management , not to devise default funds. If their marketing departments decide they want to make themselves attractive to the people who buy their funds by suggesting default strategies- ok. But managing existing money comes first.

It is, in any case , impossible to accurately establish what people will invest in after April 2015. Firstly we can’t second guess individual choices and secondly, until a new default decumulation strategy takes hold, we have no idea what those who don’t take choices will end up not choosing (but investing in).

Faced with their being no default product and no information on what people taking choices will do, the asset managers would be better off getting their house in order and complying with what they have been asked to do by the DWP, the IGCs and scheme trustees.

IMA obfuscation #2 – pretend it’s somebody else’s job

So back to Jonathan Lipkin and his smokescreens. The second smokescreen is the IMA’s contention that the charges within their funds aren’t really important and what really matters is the annual management charge which is “not much” to do with them.

It is true that the cost of asset management to schemes and contract based management is a relatively small part of the Annual Management Charge. The AMC has to pay for administration, member communications as well as all the junketing that goes on to encourage people like me to recommend one scheme or CPP over another. The cost of fund management to the scheme of GPP managers may be less than 0.05% pa.

But what is the cost to the members of the fund management?

That is the great unknown

The cost to the members may be many times more than the cost of the fees. Recently Railpen admitted that following an internal investigation they discovered it was paying five times as much in hidden costs as the headline fee for fund management.

Railpen’s is an extreme example, it was investing in notoriously expensive fund management techniques , most of which would not be included by those creating and managing DC default funds.

Why it is absolutely the IMA’s job and why it matters

But this is the point. Until the IGCs and Scheme Trustees who choose the default fund strategies know how much these strategies are really costing, they cannot make a decision.

And until the IMA and its members agree a formula to properly disclose these charges, the people who make the decisions about the new defaults won’t be able to make informed choices.

And until the IGCs and Scheme Trustees get the information about hidden costs they will not be able to comply with their duties post April 2015 which include reporting to members of the Schemes and GPPs on the default (and other) funds offered them. This reporting must specifically mention the quantum of costs being born by members within the funds they are being asked to use.

Trustees and IGCs can report on everything else, they can show nice pie charts that demonstrate how the AMC is divied up between admin, comms, reserving distribution and “corporate overhead”. They can even include a slice for what they are paying for fund management. But that is only telling half the story.

What the IGCs and Scheme Trustees cannot tell members is what is being taken from the fund’s net asset value by way of hidden charges – the costs of dealing , of currency hedging, of  broker research (still bundled into dealing costs) and the market impact of the execution of trades.

This shameful dissembling must stop

It is absolutely wrong- shamefully wrong – of the FT to allow its pension magazine to be used as a PR soapbox for the IMA.

It is shamefully wrong of the IMA to imply that it is trustees and contract based managers who are lagging. They cannot define the AMC till they have the management information the IMA and its members are with-holding.

The AMC will be defined by subtracting both the cost charged to the trustees or GPP manager for funds and what is taken out of NAV from the 0.75% cap. The remainder of the annual charge pay s for the fixed costs and anything left over is the scheme or GPP managers to keep.

So Ian Smith at Pensions Week, these are the two questions you should have asked

  1. When are the IMA’s members going to publish the total cost of the fund management (both explicit and hidden)?
  2. When are they going to stop meddling in default design and public disinformation campaigns on AMC definitions?


What the Government are doing to sort this out

There is some good news on the horizon. We don’t have to listen to this kind of nonsense from the IMA  much longer.

The FCA are working out a formula which ICA members will have to use to calculate hidden costs. This “Government Intervention” has been deemed necessary because the IMA and the ABI would not publish a satisfactory formula themselves.

I have written elsewhere on this blog about the IMA’s continued support for shocking malpractice such as the bundling of broker research into trading costs (a form of soft commission). The FT have recently reported on the practice of some fund managers of putting trustees buying their funds under a “non-disclosure agreement” to make sure that where low prices are demanded- they are not made generally available to the market.

Why this Government Intervention happened

The DWP and FCA interventions are happening because the IMA and its members arrogantly refuse to comply voluntarily with what their customers can rightfully claim to be “best practice”.

I see I have a meeting with Jonathan Lipkin in my diary on November 11th and you can be quite sure that what I am saying in this blog, I will be saying to his face.


And how’s this for barefaced cheek?

Oh and if anyone wants to hear the Jonathan Lipkin view on investment governance – including his top tip to take DC governance seriously – try this little beauty from May 2013.

If you need the IMA to teach you about DC Governance – you’ve got a problem!

APTOPIX Britain RBS Protest

Posted in FCA, Financial Conduct Authority, Financial Education, governance, pensions | Tagged , , , , , , , , , , , , , | 5 Comments

10 reasons why I’m proud to work for @firstactuarial

First Actuarial Students

First Actuarial Students

  1. We have our Conference at the brand new Centre Parks at Woburn (KPMG hire the O2)
  2. Our clients don’t pay to hire the O2
  3. We don’t do fiduciary management
  4. We don’t have a vertically integrated mastertrust
  5. We let people blog, tweet and comment – we don’t do “thought police”
  6. We know how to laugh at ourselves
  7. We’re ten years old, 200 strong and turned over nearly £15m last year
  8. We don’t lose clients
  9. The 9 people who started this thing are all still here
  10. They own a wedge of Pension PlayPen

F1rst Actuarial hi-res

There are people who think that we are uncommercial. That’s because we take a long view. Because we don’t have bank debt and don’t have to report to venture capitalists we can build our business at our and our client’s pace.

Clients who fund pension schemes are in for the long-run. Pension plans aren’t “one and go”, they need nurturing. We could make a lot of quick money out of pensions (and many do) but since most of us are under 40, what’s the point of a Lamborghini today and your reputation toasted?

Working for people who take a long-term view is comforting, I’m 53 and I’ve probably got 20 productive years left in me. I’ve still got my health and my sense of humour.

First Actuarial is still at the start of it’s career, just breaking out of nappies compared with some of our rivals.

But if I was competing with my pension scheme for the running of my business – I’d want to be speaking to First Actuarial on how to manage those “bucking bronco” liabilities!

And if I was a trustee concerned to make every penny in the scheme and every penny of my sponsor’s contributions work for my members, I’d want First Actuarial helping me out.


First Actuarial is a great firm- I’ve been working here for nearly five years and can say I’ve never worked happier. We are celebrating our tenth anniversary with a day and a night at Centre Parks, we’ll be working and playing and dancing and we’ll be bedding down in chalets in the Woburn Woods.

actuarial post

No wonder we’ve been nominated as Actuarial Employer of the Year. Wouldn’t you rather be working for us?

First Actuarial Students

First Actuarial Students

Posted in advice gap, pensions | Tagged , , , , , , , , , , | 2 Comments

Steve Webb – a new model politician?




Let me declare an interest, I am a Liberal, born into a Liberal family in a part of the world where Liberalism is the natural opposition to conservatism.

Steve Webb is from that part of the world, his constituency 40 miles north of where I grew up in North Dorset. I would like him – wouldn’t I?

I remember the moment when it became possible that Webb might see power, it was when Nigel Waterson lost his seat narrowly (to a Liberal as it happened). The days following the general election saw Clegg as powerbroker. Had the Liberals joined labour to form a coalition, my political prejudices would have been satisfied but I doubted then and now that Webb would have been pension minister.

It was only because of the absence of expertise on the Conservative benches (Willetts excluded), that Webb could take the job. That and the fact that IDS is a charming collaborative man who could tolerate collaboration.


Speaking privately with Nigel Waterson, I got the impression that he is full of admiration for Webb. Graciously he has pursued an alternative roles as Chairman of NOW pensions.

Within pension circles, Webb is pretty well liked; other than the IFA boo-boys who troll their websites, there is an acceptance that this articulate, funny, balanced and decisive minister has got most things right and those things that he has got wrong- he has got wrong in a good way.

He’s had cock-ups, the false starts over the charge cap, the silly deferred annuity scheme he dreamt up with Alan Rubenstein and some naive attempts to take on the annuity industry prior to the budget. Clearly there are some things that the junior partner in a coalation (both in terms of party and department) can be excluded from. The Government Actuary knew about tax reforms before the Pension Minister and that doesn’t go down well with pension people.

But in all these things, Webb did not throw his toys out of the pram. The charge cap will be in place (as will be most of the pension reforms for workplace pensions) by next April. The ill-advised excursions into product design are morphing into strange synthetic products that may mutate into something useful , and his comments about annuities at least keep live the debate about whether anyone who bought an annuity in the years of QE was well advised. If there is a compensation bill- will it be HM Treasury that foots it?


But the Webb legacy will be felt most in his work on the State Pension  which will be simpler, fairer and better understood from 2016. Thanks to the triple lock, it will be bigger than it might have been but it remains “basic” and will continue to be for “old age” despite losing those badges. The options for women to catch up on contributions and the greater fairness to future generations for women are what make Webb’s work especially valuable.

I am hugely impressed by the way that Webb has handled himself since the Budget. As mentioned before, he did not throw his toys from the pram when the announcement was made. He did what any clever politician would do, and grabbed the initiative. Whether the Lamborghini was a deliberate distraction or a slip, Webb has made it his icon and in a strange way stolen a part of the Treasury’s thunder.

The Lamborghini and the meticulous work on the single state pension show that Webb is both a populist and a pensions teccie.

I was speaking to a payroll geek the other day and discussing the new auto-enrolment contribution bands. “I bet you wish your views were heard by the politicians” I joked. “They are”, replied my friend, “Steve Webb had lunch with us last week”.

For anyone who thinks Steve Webb a headline grabber, they should remember the unglamorous work he has put in on making auto-enrolment work for payroll. The Friends of Auto-Enrolment will testify to that.


His fellow Liberals have been slow to acknowledge him and I sense he doesn’t care too much. He is a great ambassador for the Liberal Party and if they had a little more sense, they hold Webb up for what he is- their greatest success of the parliament.

But Webb is rather less the party politician and more the pension statesman. In his dedication to the single cause of improving the lot of our elderly population, Webb has broken new ground. While Ministers for education, justice and many other departments continue to come and go, Webb has turned the pension brief from a shortcut to the Treasury to a personal fiefdom.

As Pension Minister, Webb seems neither a collaborator with Conservatives nor a scourge of the opposition, he seems what he is – a Pension Patriarch.


I think that Webb’s style of politics which involves an immersion in his department’s affairs, is hard to emulate. It requires all of Webb’s personal, intellectual and political skills to carry off.

But for politicians looking to rise above the mire and get the respect of those who are professionally impacted by their work, Webb should be a role-model.

I am a Liberal, I have not had much to cheer about these last five years, but I have had Steve Webb. Frankly that has been enough.

Posted in DWP, steve webb, welfare | Tagged , , , , , , , , , , , , | Leave a comment

The language of trust..Pension Play Pen Lunch- Monday


The Pension Play Pen lunch on Monday (Nov 3rd) will be led by Mark Scantlebury of Quietroom and will discuss the language of trust.

The point of the Pension Play Pen Linked in group is to get nearly 6000 people to work together to help restore confidence in pensions. We started out on October 30th 2009 so in our first five year term, we’ve got quite a number of people with different backgrounds,jobs and outlooks behind that general aim.

But we are still miles from restoring confidence in what we do.

In our view there needs to be a general cleansing. Much of this is going on. The work of the DWP in cleaning up workplace pensions is complimented by that of the FCA in cleaning up retail plans. The Pension Regulator is ensuring auto-enrolment works and sorting out the attacks of those who are trying to liberate pensions into their bank balances.

But the language we use about pensions is far from transparent.

Steve Bee in his latest blog- back to basics- mourns the loss of phrases such as “the basic state pension” and “the old-age pension” for a “single tier pension”. He is surely right, the state pension is basic, it is for those in old-age and the fact that it is now a composite of S2P and BSP is only of any interest to Pension Geeks.

There is a movement to ban the use of “pension” because it gives the wrong message. People like Michael Johnson believe that pensions are already dead and are happy dancing on their supposed grave. But people are not afraid of the word pension, they just want pensions to be fair and benefit those who pay into them, not just those who run them.

Mark Scantlebury’s consultancy, Quietroom, focusses on the language we use to describe what we are about and – all too often- Quietroom has to rewrite the words we write and teach us not to say things in the way we are used to say them.

My firm, First Actuarial, used Quietroom to make-over the way we talked about saving for old-age. they’ve had a profound effect, we’re forever pulling each other up when we use language that isn’t jargon-free and confronts our audience with expressions that are defensive and offensive.

I do hope that we’ll see you at the Counting House at 12 for 12.30pm. Typically the food and drink bill is £15 ,we wrap up by 1.45pm and it is always brilliant fun.


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“To meet the needs of those in the middle” – what pension consultancy should be about!

west was won2

The Advert

On Tuesday I am sitting on a panel with good friends; Otto Thoresen, author of the Thoresen report; Mathew Arends, Partner at Aon Hewitt, Duncan Buchanan president of the Society of Pension Consultants. The session will be chaired by Malcolm Mclean OBE.

The panel is the highlight of a day discussing the future of pension consulting and I believe you can still get tickets here

There’s a good supporting card including my buddies Simon Leyland and Peter Shellswell and some other people. They’ve even brought in that joker in the pack , Michael Johnson who I hope will do his party turn and tell us that pensions have no future. There’s nothing like Michael to boil the kettle.

The only thing missing is women – consultants don’t have to be male! I’ve put some pictures of some women in this blog to remind me that they are the people who generally get things done!

The Conference is  in central London and gives you all the tra-la-lah of CPD points so I hope I’ll be seeing you there.

The danger of uncontested scrums

The only problem with the panel is that it is in danger of agreeing with itself. Matthew is a fan of CDC (though he hasn’t quite got the point that it’s for people not employers- see yesterday’s blog). Malcolm is generally right though he works for Barnett Waddingham which is becoming an old folks home for retiring grandees, Duncan is a good man but spends far too much of his life devising tax-avoidance plans for the pension super-rich while Otto is representing a clapped out trade-body saddled with debt and a mutinous membership.

So I will find plenty to disagree on! I hope my colleagues will cast an equally jaundiced eye over First Actuarial and the Pension Play Pen. We need some genuine debate. Watching rugby with uncontested scrums (I’ve just watched England lose to Australia this morning) is a sad affair!

Where consultants can be so rubbish

I’ve sat on too many management boards of the consultancies I’ve worked for to have any respect for the way they are run. When the primary objective of a consultancy is to generate value for a small group of Founding Partners, then consideration for the other stakeholders –employers, trustees, members and yes- staff – is second order. The principle of the customer comes first cannot be subjugated to a spread sheet where the first line read is “margin”.

Where consultants can help

The future of pension consultancy lies in seizing the opportunities and managing them. That is not the same as exploiting them. The new pension freedoms offer us the Wild West. We can act as bandit or as sheriff, or we can be the guys who built the ranches and bring ordered prosperity out of seeming chaos.

west was won 3

There are a whole load of things we can do to make these freedoms work but if we start with a vertically integrated model which asks how many bps we can suck out of “funds under advice” , we will drag pensions back to where they came from – and that is not a good place.

I hope we can talk about the positive role that consultants can play to;-

  1. Construct products that engage, educate and empower people to organise their financial affairs in retirement
  2. Warn people off the scammers that beset our industry like the bandits and brigands that beset the ranchers.
  3. Ensure that we preserve the heritage of defined benefit provision- both funded and unfunded
  4. Promote pensions as things that serve the needs of people retiring and not the needs of the pension industry.

Where should our focus be?

All the panellists were asked to put down a few bullets about what they thought was important. One panellist struck me as hitting the sciatic nerve that should enliven the whole event, his bullet

(to meet) “the needs of those in the middle segment (too much money to just take the cash, too little to perceive value in seeking regulated advice” .

Consultants are not offering retail advice, they are working through those organisations that individuals rely on for the delivery of their retirement income, employers, trustees, unions, insurers and fund managers. They cannot both advise on and be the managers of the benefits for consultants have a critical governance role. They must remain unconflicted and properly independent to fulfil this function.

There are those who will serve the needs of those with limited funds and debt, those who will manage those with wealth but consultants need to focus on the vast majority of UK citizens who will reach retirement solvent but not comfortable. People for whom an acceleration of retirement income by 20% would constitute an economic miracle. I believe we can achieve such a goal.

I will be 53 in a few days, today the average person is providing themselves with around £1800 per year of private pension (based on median pot of £36k), if we could increase that to £2,000pa within five years – solely by making pensions more efficient – we would have done something worthwhile.

Increasing pensions efficiency by 20% over five years may be what we can do, but individuals, by saving more into the new and better vehicles we can hope that pension outcomes increase by very much more than 20%.

If I had a single phrase I could use to capture what 2015 will mean to me it would come from that quote.

“To meet the needs of those in the middle”.

west was won

Posted in actuaries, advice gap, auto-enrolment, dc pensions, defined ambition, drawdown, Payroll, pension playpen, pensions, Retirement | Tagged , , , , , , , , , , , | 4 Comments

Parliament debates CDC -with a twist in the tail!


If you are generally interested in the way Britain will develop private pensions in the next twenty years, I would strongly recommend watching the two sessions of the General Committee reading the Pension Schemes Bill,

The link to the video is here- fast forward the first two minutes that have no sound.

In particular I would suggest you watch the first session, which includes contributions from David Fairs of KPMG, Hilary Salt and Derek Benstead of my firm-First Actuarial, Stefan Lundbergh of Cardano and David Pitt-Watson of the RCA.

There are questions from a number of MPs including Steve Webb and Gregg McClymont and some healthy scepticism from Richard Graham MP

If I have one takeaway from the two meetings. If collective DC schemes are going to flourish in the UK, they will need to fix the problem with DC and the problem with DC is not just the “cliff-edge” of annuities but the lack of certainty from drawdown.

For those critics of CDC who want to hear answers to concerns about the communication of the benefit promise, listen to Derek Benstead’s explanation. For the views of Homer Simpson not Homer Economicus listen to Stefan Lundbergh. For a really good explanation of the employer’s position – specifically the desire of employers to use CDC as the back end of existing workplace pensions- listen to David Fairs. Finally, for a clear statement of why people can expect better outcomes from CDC than from annuitising DC schemes- listen to David Pitt-Watson’s opening remarks.

The second video deals with the Guidance Guarantee and has much to say about the Guidance Guarantee, especially from Sue Lewis , Chair of the Financial Services Consumer Panel. Jim Bligh of the CBI and Martin Lowes of Aon Hewitt speak of CDC but there’s is a different vision of the purpose of the collective. At one point Steve Webb interjects to suggest that it is infact the risk-sharing schemes that offer alternative guarantees to DB that might be of more interest to the employers Jim is talking to.

If my major takeaway from watching these two hours of video was that CDC is the answer  to the problems with DC, then perhaps Richard’s plea for a “default decumulator”  to which DC defaults can point will be an investment strategy, it will be a different kind of pension scheme.

It is the discussion in the final minute of the video (15.57) when Martin Lowes waves a flag for people with multiple dislocated pots and Sue Lewis a flag for the self-employed. These are the people for whom CDC has most to offer- and about whom we hear the least.





Posted in CDC, pension playpen, pensions, Pensions Regulator | Tagged , , , , , , , , , , , , , | 2 Comments

Cold turkey

cold turkey

A large proportion of people in pensions are currently going through cold-turkey.

I’m referring to those working for pension providers, advisers and employers who have benefited from commission for the past 30 years and are now finding the commission turned off.

Like junkies deprived their fix, advisers sit listlessly. The workplace pensions they recommended with such enthusiasm in the years leading up to 2012 are now a liability on their balance sheets, banked profits for commissions to be paid after next year must now be written off and be replaced by fees for which there is no certainty of payment.

Insurers, who may benefit in the long-term from not having to pay trail commission, have immediately to write off the banked income streams from AMCs exceeding the 0.75% cap (which from April next year must include any commissions paid. The impact on the commission paying insurers has in some cases exceeded £100m.

But it is employers who are in for the rudest shock. The “free” consultancy they have been used to will be no more. For the costs of the pension advice they have received will no longer be payable by members, it will be payable out of their p/l and its impact will sit on their balance sheets.

Employers have three ways to go. Either they can ditch those nice to haves which they have got used to – workplace pensions advice, clever communications and the odd invite to the adviser’s golf-day, or they can pay a fee commensurate to the commissions given up. If advisers are prepared to drop their commission revenues to a “reasonable fee” then the blow may be softened but there will still be unbudgeted costs.

The third way for insurers is to move to a new adviser. Where no accommodation can be reached with the existing adviser, this may be the preferred approach. We have yet to see whether the advisory community will recover their pension mojo but at present they are showing absolutely no appetite for doing so. The phrase “it’s not about the pension it’s all about the payroll” is as much about adviser’s capacity to make money from auto-enrolment as it is about auto-enrolment.

Of course auto-enrolment is difficult and employers need help with the payroll but it is patently about pensions, that’s where the contributions are going, that’s what staff see, that’s what they were telling employers from the first pronouncements on auto-enrolment in 2005 through to the point when the DWP turned off the commission tap in 2014.

When I presented to 200 odd employers at the Pitch Final, one of the judges told me afterwards that she hated pensions and would never pay a penny to me or any pension advisor. I asked her what she did for her current employees and she said they paid for their own advice. She turned really nasty when I pointed out they wouldn’t for much longer.

There are going to be some very angry employers when the proverbial hits the fan. Next year will be a year of re-negotiation, of re-statement and of resentment. Those advisers who have always charged fees will not be affected, indeed they will pick up business when employers choose or have to move. The 1.2m employers who will be staging auto-enrolment between now and the end of 2017 will be faced with the novel concept of having to pay for pension advice or risk offering their staff a pension blind.

The implications of the abolition of commission on these employers has not been properly recognised. They have at least one advantage over larger employers who have chosen to fund pension advices from their staff’s policies – at least for them there is no cold-turkey. They were never hooked.

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MAS goes it alone to provide an “at retirement advisor directory”.


The Money Advice Service has been consulting over the past few months on what a Directory of IFAs might look like. This consultation was spurred by the imminent launch of the Guidance Guarantee which will generate requests for financial advice.

The point of the Directory is to present people with sources of advice suitable to their needs. So it will be a “dating agency” filtering advisers by location, delivery options, (f2f, web and telephone) and any exclusions that advisers might impose to ensure that the customer is right for them.

We now know that, contrary to the stated intent of the procurement process, MAS will be building and managing the Directory themselves. This may be disappointing to organisations (such as ourselves) who pitched for the work, but it is perfectly reasonable for MAS to adopt this approach, provided MAS recognises the responsibilities it is taking on.

My first worry relates to MAS’ independence.

The database MAS will be using will not be Unbiased’s or VouchedFor’s or PICA’s or any other trade association. MAS will get its feeds directly from the FCA. This is absolutely right and it is what First Actuarial called upon MAS when they requested us for proposals. By using data feeds from the FCA’s directory, MAS are remaining independent of all trade associations, any accusation of bias or complain about exclusions vanishes since the FCA are the ultimate arbiter.

But by being the managers of the Directory, MAS becomes the gate-keeper and since MAS is paid for by a levy on advisers, we need to worry about conflicts. By including an adviser on the Directory, MAS and by extension the FCA are endorsing that advisor. There is no longer anyone else in the process acting as quality control.

So we need to feel absolutely confident that the experience for those seeking to buy advice – many of whom will be first time buyers- will be a good one.

My second worry relates to the “exclusions” being applied by Advisers.

At two recent events I have attended, the Corporate Adviser Summit and the Investment Network’s October meeting, advisors have told me that they intend to exclude not by “minimum fee” but by “minimum funds”. This sets alarm bells ringing!

If you want to see for yourself, just how prevalent this practice is – go to and search for advisers near you. I suspect that few will want to advise you if you have less than £100k of wealth.

If I go to a lawyer or an accountant I expect to be presented with a set of time/cost rates. I might get an indicative quote for the work to be done, if I was lucky I might get the job quoted at a fixed price.

So what is the relevance of the funds I have at my disposal?  If I have no funds to manage, can I not get advice?

The inference is that the fees I will be paying for my advice will be based on the funds I have to be managed.  But I am not going to an adviser to get my funds managed, I am going for advice as to how I should financially organise my retirement. This involves me thinking about how much I will have to work, how I should plan for extreme old age, what I should be doing about my property, inheritance, the advisability of buying extra state pension and when I should be doing all this.

The question of who and how I should have my DC monies managed may fall out of this conversation, but it should not be the primary conversation.

The impression I get from talking to advisers is that the major decision – the point of advisory sessions – is to find an alternative to an annuity. The alternative to be promoted will be the Advisor’s proprietary solution which is likely to involve a basis point charge over the assets under management. This is what is now called “vertically integrated advice” which is a posh term for commission.

And so long as this is the primary focus of the Advisor, all other options are likely to be discounted. So the woman with a reduced entitlement to the new state pension, or the person close to state retirement age may not be recommended the option to buy more pension rights because of this bias. When new non-advised products arrive as part of the DA agenda, they too may get ignored. Even annuities, which may be the most suitable choice, are in danger of getting forgotten such is the allure of “funds under advice”.

The obvious alternative is to ask people what initial fee they are prepared to pay for their advice,

My third worry relates to the customers of this advice.

There is a real danger that advice will continue to be advertised as “free” and that advisors will depend for remuneration from a charge on the assets under advice. Unless the nominal amount being taken out of the funds is properly advertised, people will continue to discount the basis point charge and forget that it is every bit as expensive as paying the advisor by cheque. 1% of £100,000 is a thousand pounds. But is not just £1000 in 2015, it is £1000 in 2016 and for as long as the £100,000 remains.

Here there are two further problems, firstly a conflict between the adviser and his client as to the spending of the money –the more spent, the less the adviser earns in future, secondly an inbuilt bias for the advisor to be inattentive in future years. We have ample evidence of how the commission system gamed against the customer. Commission- based advisers were better off letting sleeping customers lie (as they got paid for doing nothing).

The new customers that MAS will provide may not be sophisticated and may not understand that by entering into a contract where the adviser takes a charge on assets for advice just what this means. This advice is not free and if advisors free-load on advisory assets in future, it will be picked up. The financial press are watching and the cavalier practices of the past will be quickly exposed. Customers who claim to be fooled into advisory agreements are now well informed on their rights and will have the full-force of the consumerists behind them if they can prove they are not being treated fairly

My final worry is for MAS itself.

By taking on the management of the Directory, it is putting itself directly in the firing line for any criticism of the advice given. It is therefore doubly conflicted. On the one hand it is to act as a gate-keeper protecting consumers against bad practice and on the other hand as promoter of advisers who are paying its fees. Can any organisation act as an independent interface when it has such skin in the game?

And now three questions.

Can MAS can be smart and outsource the quality control to the customer?

If MAS are smart, they will follow up on the second of our suggestions to them. They will ensure that they receive feedback on the experience of using the advisory from the customer. When the dataset is big enough to be meaningful (for instance when five reviews of an advisor have been received, MAS have got to be tough enough to publish the consensus view of that advice – ideally by means of a star-rating. This blog will be subject to such rating and over time will get the rating it deserves. I see no reason why the same should not be the case for advisors.

Indeed over time, a composite rating which judged the advisory experience holistically might even be broken down into the individual measures by which advisors could be judged. What those measures should be is a matter for further debate which we need to have.

Will MAS be bold and promote feedback from day one?

It is important that the Directory that MAS builds – is enabled not just to issue feedback forms but to collect the feedback scores and start the rating process. The publishing of scores may have to wait a few months, maybe a year, but Advisors and Customers need to be aware that this feedback will be used in evidence.

Absolutely critical to any feedback is to capture whether customers understand what they are paying for and what they are paying. Since this is the point at which the financial services industry has fallen down in the past, this must be the point that MAS shows it is serious.

If MAS acts as the guardian of transparent charging then the rest can fall into place. I have no doubt that advisers, who have clear rules to work by, will work within those rules. It must be made clear that the Directory is here to promote financial advice and not as a means to collect funds under advice. Where advisers are seen not to be advising, but simply selling their proprietary product, this must be reflected in an Advisor’s rating. MAS must have the ability to share this feedback with the FCA and Advisor’s must be aware that their behaviour is being monitored in a very real way.

Can MAS pull it off and redeem itself?

I think this is the acid test for MAS. If they are to be the managers of the Directory, they must accept they are both the consumer and advisory champions. There is no reason why they cannot do this but they will have to significantly raise their game to pull this off. There is no doubt that MAS is held in low-esteem within Government and among Advisors, MAS cannot duck this perception. The Directory gives it a seat in the last-chance saloon. How it manages the Directory will determine whether it is turning itself around or whether it continues to be an expensive unloved quango.

Having given MAS free consultancy on this matter, and having seen MAS adopt the main thrust of our proposal to them, I think they are in turnaround mode. Indeed, by taking back the Directory- the management of which they intended to outsource, they are stepping up to the plate. They have rolled the dice and doubled the odds, success should be praised, but failure will be damningMAS2

Posted in Money Advice Service, pension playpen, pensions | Tagged , , , , , , , , , , , , , , , , , | Leave a comment

When losing seems like winning- the last post from #thePitch14

Glad you did


We didn’t win but it felt like winning and how it feels to be Rebecca Coates of Properteco (the overall winner) , I’d like to know!

It’s a gruelling 12 hour day and if it involves a  trip down  to Bristol from the Smoke, it’s a young man’s day. Pension PlayPen were up for a couple of gongs at the Payroll World Awards which we managed to make (thanks PW for kicking off at 10.30pm!)

30 3 minute pitches, an address from the magnificent ,Mayor of Bristol , a few talks from entrepreneurs who’ve made it, including a young fellow called Mark Pearson who made £65m from selling vouchers and a lot of networking. That’s what you get in your twelve hours.

But what you take away is an understanding of how it works. The Candy Crunch generation of entrepreneurs who create algorithms that make you addicts to their service. Why can’t we have this in financial services, why can’t I find myself on level 21 of “Save my Dough” earning online bananas for level 22? What’s stopping workplace pensions becoming as much fun as the “Financial Game”, why can’t we come up with such a stunning concept as “night zookeeper” to excite the people we talk to about later life?

If I was disappointed by anything it was the absence of the financial services community from the event. Where were Hargreaves Lansdown  or any of the great advises from the Bristol area, where the life company strategists or the asset managers?

Here were the top 30 , chosen from thousands, the start-ups and SMEs who are making it, have proper business plans and ideas that can inspire and make money. Of the hundreds at the event, I did not find one who was involved in helping people save money.

But let me not dwell on the persistent failure of the financial services industry to listen. Let me finish by thanks Dan,Meg,Rachael and the whole Pitch Team for a brilliant day.

Many of our fellow contestants told me they’d back next year, I hope they won’t. I won’t! The Pitch has been going 7 years now and every year it brings through new entrepreneurs, new ideas and a new audience of inspiring and inspired people.

Without this new blood, we’d atrophy. I urge you if you are reading this and have a great idea to take the advice of  Mark Pearson, don’t wait a year for funding, just do it. Get out and start your business, put your idea into action, and even if you have no money, get yourself heard.

Mark’s been in touch since I posted this blog and has sent us a great endorsement. Obviously he’s not let £65m go to his head and he’s as keen to give us a leg up now as he has been to help out millions with his voucher scheme.

Here’s what he wrote us!

“Henry has clearly used his industry expertise to capitalise on a change to the law with regards to workplace pensions.

Many SME’s don’t have the internal resource to deal with issues such as these so there is a natural demand for Pension PlayPen.

Fuelling growth through education seems to be a key part of the business and a very strong unique identifier; the straightforward approach will stand the business in good stead as it scales up!”

One good turn deserves another so here’s a big fat endorsement for the brilliant and Mark Pearson -its founder!

My lasting memory of the Pitch will be of a young lady pitching the Noah Project Newquay, so nervous her whole body was shaking. I hope the Pitch post the video but here’s the link .

“here error is all in the not done, in the diffidence that faltered”

the pitch


Posted in auto-enrolment, pension playpen, pensions, Retirement, the pitch | Tagged , , , , , , , , , , , | 2 Comments

Wish us luck as we Pitch to be Britain’s top micro-employer!

Racing in Windsor 005


Today’s the day we pitch to be Britain’s top micro-enployer at the Paintworks in Bristol.

We are one of 30 employers left in the competition, one of 20 actively trading- we have a 5% chance of winning!

But that isn’t the only point, everyone seems to be winning from  the Pitch. We’ve made some great friends, learned a bundle about pitching and marketing and we’ve learned a lot about ourselves through working on our financial projections.

This competition is more than about marketing, it’s about building sustainable businesses that grow to be the employers of tomorrow, so win or lose today, we’re looking forward to a great day. Olly, my son, is with me- I say to learn- he says to stop me embarrassing myself!

So here’s our pitch!

hi res playpen

Who are we?

Pension Play Pen is Britain’s first end-to-end pension enrolment service for small employers. We engage employers , we educate them and we empower them to stage auto-enrolment with the pension that suits them best!


ae infographic

What’s our market?

Our opportunity is the 1.2m employers still to stage auto-enrolment , the majority of whom have no suitable pension for their staff, ask a group of 100 such employers how many are ready to enrol and one person might put up their hand. We need 1 person in a hundred to use our service to meet our financial targets.

Hilary Salt


What’s our solution?

We take data from employers and show them what auto-enrolment will cost, we give them tools to model that data to get the contribution structure right,

We send the data to up to 25 pension providers who we rate (using First Actuarial’s balanced scorecard). The employer pays us £499 (+vat) and sees all the providers who will offer terms and the terms on offer. Each provider is listed in a league table, with a rating beside them- the highest rated is at the top of the list.

The ratings are adjusted by the experience of employers who have already used the system and the experience of payroll suppliers and bureaux.

The employer then takes a decision, the data is then downloaded to the chosen provider who uses it to set up the scheme, meanwhile the employer gets a detailed report on the process and their decision which is their audit trail, they also get a certificate that confirms they have followed a process endorsed by First Actuarial.

pensions robbery

What are our threats?

Fear and apathy- fear of pensions and apathy about the pension decision. Many employers , their accountants and even regulated financial advisers do not understand what makes for a good process and are intimidated by auto-enrolment. Many employers are scared by new technology and the novelty of our approach.

Other employers get what they do but think all pensions are the same, they are sceptical that you can choose a good pension and will take the first offer that comes along (usually NEST)

To counter these threats we engage people with our enthusiastic approach ,educate people through blogs, talks and caseless natter on social media and empower people using our system to make a difference



How do we make out money?

So far the bulk of our revenues comes from our brilliant advertisers (thanks guys), but increasingly we are making money from transactions, as we build our big dataset through more and more use, we expect to become the primary source of data for those with a strategic interest in auto-enrolment in the UK.

the pitch

Why do we want to win the Pitch?

To extend our outreach and get to more of the 1.2m employers, the people who advise them and the people who run their payroll.

Please wish us luck today and if you haven’t already done so, please register at . We need your support!

Posted in advice gap, auto-enrolment, corporate governance, dc pensions, NEST, pension playpen, pensions, Retirement | Tagged , , , , , , , , , , , , , , , , | 2 Comments

Après-midi with the Bermondsey Bee – some thoughts on advice

girl in a bar

Girl in a Bermondsey bar – roller-pen on napkin- Steve Bee

I spent some leisure time yesterday afternoon with Steve Bee in and around the Bermondsey St Debtor’s Prison in which Jargon Free has its offices. I am 10 years younger than Steve and for many years have seen him as a mentor ( he co-wrote a book called Savings Sense with Ben Jupp in which he called for state paid advice for all) . I remain amazed about the simplicity and depth of Steve’s insights.

Lately I’ve had cause to question some of Steve’s thinking which doesn’t quite agree with mine but I’ve never had cause to question his integrity and as time goes by, the age difference seems to fade and Steve becomes a peer rather than mentor.

As well as the cartoon’s, Steve writes in an elliptical style which influences rather than opines. He sees me as a blunderbuss (which is right) a sort of Pension Ian Paisley, he is more the quietly effective Jerry Adams (IMO)!

Steve has developed an alarming habit of injuring himself, he broke ribs goalkeeping in a friendly against his grandkids and yesterday he bruised his coctics when falling off his bar stool. It worries me that Steve’s balanced approach may be a little out of kilter!



When I got home, there were a load of emails to deal with including a message from someone commenting on some remarks of Steve Webb reported in Citywire, Steve (Bee) had commented to me about the roasting he’d got on Citywire’s comment pages recently – certainly most of the reaction to our Pension Minister’s call for “cheap and cheerful” advice were little more than “abuse”.

One however stuck out as being thoughtful and well-articulated, Here’s someone called Paul Howard on the delivery of simplified advice to the mass market,


“The FCA set out its simplified advice guidance in July to support firms that wanted to provide simplified advice or sales without giving a recommendation. “

How can simplified advice be NOT a recommendation?

What chance do we have in the Regulator can’t be crystal clear on what can and can’t be provided?

Surely Webb and the FCA can agree, that if a simplified approach is required

1) The FCA needs to publish a procedure which if followed, will protect the firm from challenges that it failed to take everything to account

2) FOS needs to be told – if the rules are followed – they may not look at anything else – the complaint can only solely about the simple advice area and that’s what they look at. (As this will help ensure ‘Limited or Simplified’ Advice doesn’t become ‘Why didn’t you look into this’).

If firms then follow the FCA path on Simplified Advice – it should be profitable to the firm, suitable for the target market and be a win for the government. BUT the FCA and FOS have to work together and agree the rules are fixed and no matter what the complainant says – they stick to the rules (the procedures will state – there may be other aspects which will affect the suitability of this advice – if you are concerned about them – ask your adviser etc).

Paul’s comments fall in the same folder as my criticisms of the Regulator for muddying the waters on regulated and non-regulated advice on workplace pensions, we need a single definition of “advice” to me it is the delivery of a definitive course of action- e.g. a recommendation.

What Paul is calling for is a “safe-harbour” where an adviser can sit immune from the storms of protest, provided he has followed the rules. If the rules are not clear, there can be no safe harbour.

It is impossible to imagine a world where people will not want recommendations. Those walking through the doors of the Citizens Advice Bureau will not be expecting another door with “Citizen’s Guidance” over it. They will want to be told what to do- if only to go and get advice (simplified or otherwise).

My feeling is that people will then ask – what can I do without advice (which I don’t want to pay for) and the person giving the guidance will have to shut up. Because if you want a pension without advice you are back in the rough seas of “non-advised” annuities or the iceburg-ridden waters of “non-advised” drawdown – or you are in the Lamborghini showroom.

Steve Webb is asking the right questions though the answers may be in his “better product- Pension Schemes Bill”,



Which brings me back to Steve Bee, with whom I had a good old fashioned argument about non-advised products which concluded in us shaking hands, him drawing a nice picture on a napkin and us agreeing to work more closely in future.

girl in a bar

For the record, I don’t see how anyone would pay for simplified advice if it didn’t tell you what to do, and frankly I don’t think simplified advice can do much that you couldn’t glean for nothing on the pages of . Those who want to pay for advice have either so much money that the cost is irrelevant or such vanity that they feel they ought to have a financial adviser, I neither have the money or the inclination to take financial advice but were that to change, I would like an adviser like Mr Bee, with whom it is very nice to spend an afternoon in Bermondsey.



Another girl in a bar- biro on napkin- Steve Bee

Another girl in a bar- biro on napkin- Steve Bee

Posted in Blogging, brand, pension playpen, pensions | Tagged , , , , , , | 1 Comment

It’s not just pension taxation that’s changing- products are!

On Tuesday and Thursday this week a Parliamentary Committee will be considering the Pension Schemes Bill. This is the Pension PlayPen's written submission to the Committee.


hi res playpen


Pension PlayPen submission to the General Committee reading the Pension Schemes Bill

My name is Henry Tapper, this submission is from my company Pension PlayPen. As well as founding Pension PlayPen, I am a Director of First Actuarial who are acting as expert witnesses to the General Committee.

The Pension PlayPen helps small businesses to choose workplace pensions and explain to their staff the auto-enrolment process and why they chose the pension they did. There are 1.2m small businesses still to stage auto-enrolment and 200,000 companies born each year which will have an obligation to stage from 2017.


The central focus of my work is to restore confidence in pensions among ordinary people.

Ordinary people have fallen out of love with DC pensions, principally because the products have been seen as poor value for money and the outcomes, expressed in the annuities they have purchase, have not come up to expectations,

The public is right to feel this disenchantment. The real cost of DC pension often considerably exceeds the quoted cost (the headline AMC) and the total cost including all kinds of charges that members never see, is often ruinously high.

As for annuities, they are born down by the cost of the guarantees they provide which can reduce the income they provide by up to 50%. This is not the fault of the annuity, it is perhaps the fault of regulation, but the fault really lies in the lack of awareness of the cost of a risk-free product.

While the DWP have done much to address the costs of building up a pension, as detailed in the Command Paper in March, until the consultation that led to the Pension Schemes Bill, little had been done to address the problems with annuities.

For me, and for millions of pension savers dependent on defined contribution workplace pensions, the prospect of switching our past benefits into a collective scheme without guarantees but with sound management is very attractive.

But the public debate has been about collectives becoming an alternative to existing workplace pensions in the accumulation phase. This is no longer a problem for me, I am comfortable that following the OFT enquiry last year, the problems with accumulation have largely been solved. I want a product that can help me decumulate that provides more certainty than individual drawdown but does not contain the ruinously expensive guarantees that make annuities so unattractive,

CDC- the default decumulation product

For me, the default decumulation product is likely to be CDC. My colleagues at First Actuarial (Derek Benstead and Hilary Salt) who are much cleverer than me, have showed me how CDC can be made to work so that I can understand and feel comfortable in it.

However, they cannot give me the assurance that the structure of a CDC plan will enable me to transfer my DC benefits into the collective plan and get the benefits of collectivisation. For the record I see these benefits as

  1. Economies of scale so that I can benefit from the highest quality of investment and liability management at a reasonable price
  2. Good governance to ensure that all aspects of my Plan are properly managed.
  3. A smoothing mechanism that ensures that my pension can be adjusted in bad times so that the fund is not ruined by “pounds cost ravaging”
  4. Proper reporting on the benefits (whether increasing or decreasing) so that I can understand what Is going on
  5. A promise that my pension will be paid according to the best estimates of those managing the plan till the day I die (or where appropriate my spouse dies)
  6. A clear indication of what I am likely to receive immediately and by way of increases according to the best guess of those of the plan
  7. Property rights on my pension that allow me to take my remaining benefit promise as a transfer value either as a cash equivalent and a clear statement that this will be fairly calculated
  8. The publishing of the detailed rules underpinning any risk sharing or risk pooling within the plan , how it will operate and how I can check to ensure it has applied to me
  9. The right to transfer in benefits on my own account at any time I am in the plan.


10. Benefits I can enjoy whether my employer is sponsoring CDC or not

You will notice that in this “desideratum” there is no mention of my employer. I would like the General Committee to ensure that as part of the communication of the Pension Schemes Bill, it is made absolutely clear to everyone that a CDC plan can operate independently of an employer as a means for individuals to draw a pension from their existing DC savings.


It is important that this statement is made as most comment in the press and social media has assumed that employers will sponsor these plans and without such sponsorship, the plan cannot operate. I do not believe, from my conversations with my colleagues and my reading of the Bill and from my discussions with the DWP that this is the case.

When people understand the nature of a CDC plan and that it is a place where they can take their DC pots and not see their benefits at risk from individual drawdown or their income reduced by annuity guarantees, they will want to use CDC.

I mean especially those people with smaller pots which are unsuitable for individual drawdown and produce derisory annuities. These are the people who need their confidence in pensions restoring. CDC is a product that can help that process and I urge the General Committee to ensure that the points raised in this submission are raised in the sessions.


Thank you for reading this,

Henry Tapper Pension PlayPen Ltd.       20/10/2014

Posted in CDC, David Pitt-Watson, dc pensions, defined aspiration, pension playpen | Tagged , , , , , , , , , , , , , | Leave a comment

“Hope I die before I get old..?”

before I get old


The quote’s from Pete Townsend and the Who’s “my generation”. It’s a brutal version of the Beatles’ “when I’m 64” but both songs are driven by the fear of getting old

“will you still need, me, will you still feed me..”

I guess our generation now takes it for granted that there will be “a need” and “a feed” for those in later age and while the new 64 may now be 74, we are should be more worried about 94 or even 104

My son of 16 has a 22% chance of making it to 100, I have a 10% chance. The generations that follow us will present radically different challenges to those following them.

 It’s bigger than pensions

I don’t “get” the worry people have about pensions creating inter-generational transfers. The demands of one generation upon another goes way beyond such maths.

The relationship between ourselves and our children is driven by fundamentals – love, respect – what we used to learn as “honour”. These emotional values over-ride those temporary financial considerations such as the inequality of today’s housing and pension markets.

McCartney and Townsend now sing those songs with tongue in cheek . The same cannot be said about the American characterisation of GOPs (greedy old people). Here the little old lady is an economic and social menace.

Greedy old people

I have seen nothing quite as extreme in the UK (yet). However, I am concerned that the phrase “inter-generational transfer” now implies a one-way street where wealth flows from those currently generating it, to those who are now in their reclining years.

The  suspicion is that old people are destroying the housing market for youngsters

unlock wealth

Housing is the greatest source of regret, but there is also a growing resentment about pensions. Google Image “who stole my pension” and you have to scroll down a long way to find Robert Maxwell. Most pictures are of smug retirees pictured enjoying the fruits of others labour.

Maybe it’s because I’ve had great parents, maybe because my moral education was in a Methodist Sunday School but I find references to greedy old people too common in our society and I sense that the moral compass is being re-set against support for those in later life.

It is undoubtedly the case that wages for those at work today are artificially depressed by the cost of supporting those in retirement.

Paying the pensioners of a defined benefit scheme will be a drag on company profitability for many years to come (on current economic assumptions).


But isn’t this as it should be? The prosperity of Britain’s biggest companies (those that run defined benefit schemes) is based on the platform of the work enjoying the pensions today.

I am concerned that the far right age hate that is evident in the pictures above does not take root in this country.

Nowhere do I see more of this age-bigotry than in the debate about the post retirement pie currently being sliced up and redistributed as part of the “pension freedoms”.

On the one hand, people are being encouraged to pass on pension wealth through a tweak to the pension tax system that will encourage people not to insure against old age but maximise the possibility of pension wealth transfer.

On the other hand we are asking people to use their pensions as bank accounts leaving them destitute and dependent in later years.

These policies, which form the central planks of Osborne’s Pension PR offensive, miss the central point which is that there is not enough money in most people’s pots to bankroll an indulgent lifestyle or cascade wealth across generations.

Nor is there enough tied up in housing.

The housing wealth of our over sixties is already mortgaged twice. The cost for a couple to live with full nursing care in a home can easily exceed £100,000. But the housing equity to meet such costs is already earmarked- by many children, as their first step onto the housing ladder.

If they don’t get to live in their parental home themselves, selling the house will fund the deposit that allows them access to home ownership.

For many old people, this conflict between the needs of their children and comfort for themselves is becoming the central financial dilemma of their final years.

I can see no way we can use the Pension Freedoms to solve this problem. It will need more than tax tweaks and a shift from guarantees to create sufficient wealth to fund the long-tail of retirement for the baby-boomers.

It will take a re-assessment not just of our pre-retirement savings behaviours but a radical re-think of the deployment of our tax system.

For us to properly fund the problem of old age, there needs to be a deep understanding of the shape, size and cost of managing the issues faced by those in old age.

This needs to happen at a national level and forms part of a wide-ranging conversation we need to have, starting in the pre-election discussions on manifestos, continuing in the election debates and extending throughout the next parliamentary term.

I hope this debate will be conducted civilly and without rancour.

Posted in accountants, actuaries, CDC, pension playpen, pensions, Pensions Regulator, Popcorn Pensions, Public sector pensions | Tagged , , , , , , , , , , , , , | Leave a comment

The great pension bank robbery

George collects your pension

George collects your pension


I give 2 ½ cheers George’s pension package, the “½” being for the complex misrepresented “death-tax” changes which are regressive, complicated and could easily have been dealt with using inheritance tax legislation already in place.

I give no cheers for the spin-a-ling-a-ling with which the Treasury’s Pension Bill was presented to the press. The Pension Freedoms re-packaged as a “Pensions Bank Account” was not a new policy.

And a pension bank account is alluring but it’s not what you’re going to get. There isn’t going to be a pension cashpoint round the corner for three good reasons

Firstly, a pension is an income, generally paid for life to replace income that we cannot earn because we are getting old.

Secondly, there is no apparatus in place to provide people with banking from their pension account (and the cost of building it would be prohibitive).

Thirdly, the British public are right to differentiate one financial product from another by hypothecation, by tax treatment and by need.

By “hypothecation” I mean

“bank account –that’s for shopping”, “ISA account, holidays and cars”, “pension account- that’s to pay me”.

So this talk about Pension Bank Accounts is cheap and it’s confusing and it’s wrong. Which is a shame because while George and his mates are making cheap political capital out of their slogans, his own staff are trying to devise Guidance to the public on how to organise finances in later life.

Anyone who has been in the business of financial planning/education/advice, knows that a “savings framework” is essential to help people to organise themselves and plan for the future.

My own firm spends time in the workplace, not talking about the intricacies of investment strategy or tax arbitrage but about simple things like debt, saving and insuring against sickness and death and the “slow death” of living too long. People get it as they have first-hand experience of parents or grandparents or even with spouses of having to deal with the financial consequences of these adverse events.

People are not stupid, they know that bank accounts aren’t there as insurance. Nor there to invest for the long-term. They know that the cost of immediate liquidity is built into their retail banking rates. They will ask “Why pay for your banking twice?”

These truths are in the DNA of pension advice and George’s sloganeering cuts directly across the responsible work of TPAS and MAS (and whoever delivers face to face).

What’s more, to deliver the kind of functionality, pension providers are going to have to invest heavily (again) – and they won’t. An expectation is created – pensions will yet again be delivered “not as sold” – and fingers will be pointed at providers and advisers.

Trying to “sex-up” pensions as something they’re not is a dangerous business, But the risks of George’s sloganeering fall on providers , advisers and ultimately on the people who are hoodwinked into thinking pensions are something they are not. Everyone that is but George and his spin-doctors.

Posted in advice gap, annuity, auto-enrolment, NEST, Payroll, pension playpen, pensions, Pensions Regulator | Tagged , , , , , , , , , , , , , , | 2 Comments

Any questions on the Guidance Guarantee?

guidance 1


This blog is about a conversation I had with the Pension Advisory Service. Following it I promised to feed back questions to TPAS about the Guidance Guarantee.

The blog contains questions I want asking , some background on TPAS and its CEO Michelle Cracknell and a call to action which I hope you’ll answer.

TPAS’ problem.

Michelle Cracknell’s diary looks pretty full. If she does no more than meet her speaking obligations over the next three months she will be busy, but these are the months when the jaw-jaw turns into hard law and by April of next year, the queue will be forming for guidance sessions. Michelle knows that delivery is more than public pronouncements.

I suspect that most people looking to exercise their freedoms will do so whether guidance is available or not, so a delay in delivery is tantamount to a broken promise.

With the general election scheduled for a month after the new freedoms take effect, the delivery of guidance has political as well as social importance. We need to know that this is going to work- if all our work is not to suffer collateral damage.


What is needed!

We want answers to questions – now! Many employers are preparing benefit statements which will be their final communication before April. For many employees this will be their last regular announcement. Insurers too are awaiting the details that will need to be incorporated in their wake-up packs and advisers with client in the zone need to be organising themselves in advance of GG Day.

How TPAS can help

With so many speaking engagements, Michelle has the opportunity to help. I am not sure whether she will be allowed to speak for the Treasury, but till the Treasury can speak for themselves she has become the de-facto spokesperson for the Guidance Guarantee.

She looks a little tired of telling the same people the same things. I spoke to her after her session at CA Summit and found her desperate for feedback. She’s asking what people want to know about the Guidance Guarantee.

How this blog can help

This blog can help as I know many who read this will be expecting to advise off the back of the guidance and some will even be hoping to help deliver the guidance itself. Others will be in the happy position of being able to enjoy the new freedoms.

To kick things off, here are ten questions I would like to ask – knowing that many cannot be answered till the Treasury delivers a formal announcement on delivery.

  1. What will guidance say about the risks of investing in an annuity?

  2. What will guidance say about the risks of drawing a pensions through income drawdown?

  3. Will guidance be bespoke and take into account individual circumstances (e.g. will there be a basic fact-find that governs what is said?

  4. Will guidance deliver specific mention of the opportunities to purchase extra state pension (especially for those close to state retirement age)?

  5. What will be the line on defined ambition? Will mention be made of further options that may be available from 2016?

  6. What will guidance say  about tax?

  7. Will guidance talk about the risks of living too long and of long-term care costs?

  8. Will guidance talk about property , equity release and risks about inheritance?

  9. How will advice be signposted and what directory of advisers will be used?

  10. What will be the options for “one to many” group sessions and how will they be delivered?

There are lots of other questions I’d like to know- (what is the Guidance Guarantee going to be called in future- how will the levy to pay for it work- what are the latest estimates of take-up and  will an employer (or union) prepared to pay for financial education for staff get  an incentive for doing so).

But these are second order questions. The leaked results of the L&G survey on guidance take-up are already in the public domain. The marketing and take-up of the Guaranteed Guidance is a matter of speculation, it does not- in itself impact on the offer to those people benefiting from (and vulnerable to ) the pension freedoms.

These second order questions are nice to know, the questions about what people will get in sessions are material to the management of the communication of 2015 to our clients/members/friends.


How you can help!

If you want to post your questions on this blog please do so. If you want to post them on the threads on which this blog appears, please do so, and if you want to write to me at , please do so.

I would like to build up a document of ” asked questions” which I can deliver to Michelle , which she can deliver to the Treasury;  – and I’d like to do this , this week (e.g. by the 19th of October).

So please put your fingers to keyboard and let me know as you read this blog. Unless you ask for the questions to be attributable , they will not be attributed to you.

I cannot promise that questions will be answered specifically, but I can promise they will get to the right people (and if only by Michelle) properly considered.

guidance 1

Posted in advice gap, Guidance, happiness, Retirement | Tagged , , , , , , , , , , , , , , | 3 Comments

Young People and Pensions

blackbullion logo

This is a blog by Vivi Friedgut of @blackbullion; she is also responsible for the picture and its contents!


Pensions don’t make for the most thrilling conversations. Like verrucas, funerals or the dream you had last night, talking about pensions can be a bit of a conversation killer, and most people find them a drag to think about.

When you’re in the ‘prime’ of your life, thinking about getting older and saving your money for when you do probably isn’t top of your priority list.

Plus it is hard to make pensions sexy – and it’s hard to get young people to engage.

While the Centre for the Study of Financial Innovation found that although 76% of young people agreed that pensions are important, just 30% are contributing to one. Worryingly, of those who do contribute, 42% have no idea what type of pension they are paying into.

But the pension represents a significant pot of money, a significant investment in your future so it is worth a little bit of your time.

So to the basics;

Pensions have been going through a bit of a shake-up. The government believed the previous system was getting too complicated and opaque. They decided pensions should be easier to understand and more transparent. Here are the key facts:

1. Until recently it wasn’t a requirement to pay into a pension scheme. However due to a chronic lack of retirement savings (less than 1 in 3 UK adults are contributing to a pension) the government brought in something called auto-enrolment.

2. Auto-enrolment means that every employee must contribute a minimum of 4% of their salary.

3. Auto-enrolment means that all employers are forced to offer their employees a pension scheme. Larger firms have started doing this, and all employers will be legally obliged to follow by 2018.

Remember those terrible “we’re all in” adverts? Basically you save a bit into your pension, your company saves a bit into your pension and the government contributes a bit too.

4. New rules announced in the 2014 Budget mean that once you reach 55, you can start accessing your pension pot, taking as much or as little as you like, whenever you like.

5. The Basic State Pension is unlikely to give you enough income to see you comfortably through retirement. In the current tax year, the most you’d get per week is just £113.10 (or £180.90 if you’re married).

(For more info check out this government fact sheet about changes to the pension scheme)

Young people today are transitioning into their adult lives in the aftermath of a crippling recession. High youth unemployment, lower wages, massive debt and soaring rent and mortgage prices mean that -more than any generation in the past – they need their pension savings to go further or they be doomed to face an old age of further hardship.

An investment in your future is the best investment you will ever make so, if it’s not something you’ve thought about yet, or you’ve been trying to ignore as an irrelevant nuisance, now’s the time to get educated. A five minute brush-up on the main points to consider and perhaps a quick conversation with your parents about their plans for retiring – isn’t such a bad idea and will pay dividends in the future.

Posted in advice gap, annuity, corporate governance, dc pensions, NEST, pension playpen, pensions | Tagged , , , , , , , , , , , | 1 Comment

Tiny steps towards better DC outcomes- #CASummit14

tiny steps 3

Having spent 36 hours in the company of Life Co “strategists” and their counterparts in the IFA and EBC communities, I can now try and make sense of where “heads are at”.

The mood has changed.

Two years ago, the conference was 9 months into the post RDR regime, the concern was getting paid. Twelve months on, the conversations were about auto-enrolment and the cap on workplace pension charges. This conference was about the pension freedoms, at retirement outcomes and the employee value proposition.

Andrew Warwick-Thompson of the Pensions Regulator joked that what the industry might need is a return to having three Pension Ministers a year (changes being confined to ministerial appointments).


Auto-enrolment – a bird that’s flown (for corporate advisers)

For the large advisers represented, I sensed that auto-enrolment was a bird that had flown. For the most part, the advisors at this summit have moved on and seemed disinterested in the remaining 1.2m employers who have still to stage (let alone the 200,000 new employers born every year). This was a problem for accountants, IFAs and providers not for them.

Pension Freedoms – a fresh corporate dilemma

One delegate asked why he should worry about helping smaller companies who could not afford his fees when the opportunities to advise companies on easing employees out of the workforce was so much more remunerative.

The opportunity did not appear to be to provide individual advice. Another adviser asked whether he could make money from those with “only £30- 80,000″ in their pots. The larger pots have been managed by these guys for years and the worry was that they would have a bunch of small-pot holders thrust upon them.

Corporate advisers – by definition – advise corporates. The challenges of the guidance guarantee about delivering guidance – and maybe advice to individuals. But the impact of the pension freedoms has been felt by corporates in reminding them that the outcomes of the workplace pensions they have spent years funding, are largely dependent on the decision making of their employees as they exit employment.

The point was made more than once that when employees de-couple from the mother-ship,  the success of the pass-on from work is largely dependent on getting the retirement income decisions right. So employers have “skin in the game” again. They may not be guaranteeing retirement outcomes as they did with defined benefits, but they are still implicated in the success of the process.

tiny steps 2

Solutions to the dilemma of the squeezed middle still some way off

But while advisers and providers realise that the financial fate of employees at retirement is now “their business”, nobody seemed to have found a mass market solution. The debate on collective solutions descended into an unedifying barrage of abuse hurled at CDC. Any further mentions of CDC was met with laughter , it is clearly not an idea for which this community is ready.

That said, this community was not ready for the RDR, the OFT report, the Further Measures for Savers and most of all the Pension Freedoms. The DWP and those who are fiends of CDC should not be dismayed!


Advisers still not focussing on what makes for good DC outcomes

Our group conducted with one life company a game where we had to choose from a variety of attributes of a good workplace pension to establish five things that we could agree “made for a good workplace pension”.

I had to feel a little ahead of the game as I see the decision making of hundreds of employers and know that the top six attributes they decide on are “investment solutions, durability, employee support, at retirement support, HR and payroll assistance and cost”.

Five out of the six attributes were on the table as choices- the one that wasn’t was “durability”, by which we mean, the capacity of a provider to sustain providing the five attributes over time. This is really the fourth dimension of a proposition and to me is measured by the commitment of the provider to manage the scheme in a sustainable way. Duration is ultimately measured by the quality of a scheme’s governance.

What was interesting was that the choices made by our group as to what made for a good pension were not made on the basis of good governance and best member outcomes but on what would prove most attractive for the employer at the point of purchase. These attributes included the bells and whistles of benefit platforms, apps and most crucially a low headline management charge.

The value of a workplace pension is more than what sells it!

In these two areas of discussion, I found a contradiction that I think besets the providers of workplace pensions and their key distributors.

Employers are now having to think more about the outcomes of the pensions they establish for their staff (and about those they didn’t but underpin their retiree’s “pot”).

But employers still want to differentiate their workplace pensions by their capacity to be valued by members at point of sale. Advisers see the value of workplace pensions as what they can add to the employer value proposition at the point of entry and focus on member engagement tools to the exclusion of all else.

I argued very forcibly in our session that the priority in decision making must shift.

A low AMC is not the same as “value for money”.

Nowhere is there so much need for the argument to shift as in the understanding of the simple formulation “value for money”.

Employers are taught to concentrate on the annual management charge as the measure of cost. However, we know that many costs that members meet are not in the AMC, they are met from the net asset value of the fund and cannot currently be measured because they are hidden.

So the AMC is an imperfect measure. However it is an easy measure for employers to explain to their staff and the equation of Low AMC = Good Pension is still being used by many employers and advisers as a proxy for good decision making.

Advisors (and providers) need to spend time reading the FCA consultation paper on IGCs and better understanding the role of on-going  governance in ensuring value for money.


The employer and the adviser value proposition

The AMC is valuable to an employer because it is something that an employer can influence. By selling itself to the market as a distributor of pensions, an employer can negotiate a lower AMC and advisers, as brokers, can help in this process. The typical analysis of the value of using a corporate adviser, usually comes down to the capacity of an adviser to help in bringing down charges and the employer value proposition is often measured by the extent to which this has succeeded.

Unfortunately, if the impact of squeezing charges is to reduce the quality of the five metrics that make for good member outcomes and to further reduce the fourth dimension that ensures the scheme remains high quality in these respects, all that driving the cost down achieves is lousy outcomes in every other respect.

The value proposition shifting from point of entry.

For the first time that I can remember, the corporate adviser is going to have to become accountable not just for the value of the proposition at the point of sale, but for the outcomes of the workplace pension at the end of the member’s career.

This is the endpoint of  process that started with the RDR and is now moving towards completion.

Advisers cannot be rewarded with a fat commission on day one and then be seen no more -RDR has seen to that.

Providers cannot walk away from the on-going management of a workplace pension, the OFT report, the DWP command paper and the Pension Freedoms of the budget have seen to that.

In short, the interests of employers, advisors and providers are now aligned -they are to ensure good outcomes for those in these workplace schemes over the lifetime of the scheme (perhaps extending into retirement) .  This is good and at last brings DC plans into the same space as DB plans, who knows- actuaries may start treating DC seriously !

There is still a lag in understanding the importance of the IGCs

The importance of on-going governance has yet to properly embed itself. In 36 hours in the company of advisors and providers, I did not have one conversation about the role of IGCs, how they would interact with employers and advisers and what role advisers and employers would have on improving governance through them.

When IGCs were mentioned, they were mentioned in passing as a consequence of the OFT report, not as something that was integral to the delivery of sustained quality scheme management (in respect of what we eventually agreed mattered (investment, at retirement, administration, communication and cost efficiency).

I hope that these will be the matters we will be discussing at #CAsummit15.


Next (tiny) steps.

My estimate of this conference is that the mood has changed. Advisors and providers are no longer angry and confused, they are now concerned and confused. Strategically they have not generally grasped the importance of governance and are still too wedded to selling the employee value proposition rather than managing good member outcomes.

But we are definitely getting there. We are now on the move towards better governance and lets hope we are just waiting for the lag between what providers and advisors say in public and what they say behind the closed walls of conferences such as this.


tiny steps 1


Posted in advice gap, annuity, auto-enrolment, dc pensions, pensions, Retirement | Tagged , , , , , , , , , , , , , , , , , | 1 Comment

Why we have no time for “Banker Immunity”.



We have not seen bankers marched in handcuffs from their desks but now it seems we might.

The regulators have put-out a consultation paper that seeks to pin accountability on Directors (including non-executive Directors). A good friend of mine is a non-exec of a major British Company and I very much hope she will remain one. If she feels she is presiding over a criminal enterprise she should resign and whistle blow. If she is working to put that organisation right (which I think she is) then her actions must be unimpeachable. But if she is complicit in criminality, she should face criminal prosecution.

Bankers claim that this proposed regulation is a knee-jerk reaction from jealous outsiders who haven’t made it to their party.

Bankers claim that the removal of “Bankers Immunity” might stop talented individuals coming to the party

Bankers claim that those who have spent years partying might find themselves carted off to jail because they cannot help themselves.

The British Public will have limited sympathy for the plight of senior bankers who are being faced with the options of shape up or get nicked. They are fully aware that most senior bankers have in the vaults a catalogue of misdemeanours under lock and key.

The institutional argument is that should the boxes be unlocked, the bankers arrested, the pillars on which our community is built would crumble bringing down the building.

The British Public prides itself on cleansing institutions of bad practice. We have a police force that is regularly purged of rotten apples (often for crimes of many years passing). Politicians have to live with the legacy of their decisions.

And stepping down a few rungs, do we call an amnesty on “benefit cheats” because their sins are in the past?

It is not just Bankers who have had immunity, it is Banking. The cleansing of institutions such as our police force and Westminster, has restored confidence not just in the governance of our society but in the ability of society to call our governors to account.

Bankers seem to be above the law, not just the law of the land (as imposed by the courts and devised by parliament) but the law of the populace, as administered by the media (including the social media).

That young and talented people would not joining Banking for threat of prosecution is an indictment on banking, not on the proposed change to Banking Immunity. Would you not take a job in a supermarket for fear that if you were caught stealing stock you would be prosecuted? Have our leaders stopped wanting to be MPs because their expenses are under scrutiny and misrepresentation threatens jail?

The whole case for Banking Immunity is based on the contribution of banks to the British Economy. But if the British Economy is supported by pillars such as rotten bankers, we are storing up troubles for the future.

When we discover structural problems in a motorway flyover, we close the flyover. The resulting traffic chaos is regrettable but unavoidable. It is better than losing lives if the bridge collapses.

This is the analogy I would draw with our banking system. It serves us well but it is flawed, to sort it, we may have to take a step back now before something awful happens.

The stakes are very high. The leverage still in our banks means that a banking collapse would still hurt our economy. We know how hard by looking back over the past 6 years of austerity.

As with pensions, so with bankers – we need a cultural shift in stakeholder value so that shareholders , management and employees recognise the value of the customer. Treating Customers Fairly must be more than the patina created by television adverts, it has to be at the heart of the bank’s culture.

If banks were proud of their behaviour, they would not fear the loss of Banker’s Immunity.

They would shout “bring it on”.

Banking regulation must be used to change banking culture because , left to their own devices, bankers cannot change themselves. The disruption to banks will be considerable (two Directors of HSBC have resigned at the prospect), but like the motorway flyover, remedial work is overdue and cannot be put off any longer.

Posted in Bankers, Fiduciary Management, Financial Conduct Authority | Tagged , , , , , , , , , , , , , , , , , | Leave a comment

Do you want to be a Pension PlayPen Agent?

hi res playpen

If you fancy helping your clients to get the right workplace pension to suit their payroll and provide best outcomes for their staff, you should register as an agent at .

Helping your clients to use our service doesn’t need skill and knowledge on your part, it just needs some basic skills managing data into CSV files to assess a workforce and the numeracy to explain the cash-flows from the various contribution options available for auto-enrolment.

If you’re reading this blog, we reckon you’re 99% certain to possess these!

The tough part, finding who will offer a workplace pension and working out which is best for your client’s circumstances is done by us.

We also provide an actuarial certificate to demonstrate your client has followed an approved process and a 40 page report documenting why your client chose the workplace pension they did. We even introduce you and your client to your new provider.

We promise

1. The service works (a full money-back guarantee if it doesn’t – NO QUIBBLE)

2. A fixed price of £499 (plus VAT)

3. Volume discounts for super-introducers

4. Help if you get stuck along the way.

We’re winning awards every month for what we do and we want you to share in our success. So watch me on this video and  sign up at

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To the Pitch Final we shall go – @PensionPlayPen – #thePitch14!

the pitch

Thursday October 23rd is another red letter day for Pension PlayPen.

By day we are Pitching to be Britain’s #1 start up in 2014, by night we are up for a brace of awards at the Grange Hotel competing to be Payroll’s #I auto-enrolment technology provider and technology innovator.

Proving ourselves to Payroll and Pension people comes with the territory but we’re really exited to be in with a chance of being Britain’s number one start-up!

There are 200,000 businesses born every year and to be judged one of the 30 best is mind-blowing (forgive the X-factor hyperbole). The judges are tough including the ICAEW, AVG (who protect my computer and hence this blog) and Sift Media- the Bristol based business publishers.

We’re going to have to shoot a video, I’m going to have to explain our cash-flows and income projections and somewhere along the line I’m going to have to get in front of an audience of dragons with 1/30th of a chance of winning £10,000.

Of course future, past and the current generations of start-ups are potential customers of Pension Play Pen and it’s salutary to remember that 70% of the businesses we’ll be competing with (including ourselves) won’t be in business by our staging point in 2017.

The best thing about the Pitch is that it’s there to reduce the odds of us failing and more importantly the chances of our achieving what we set out to do. Since we set up Pension PlayPen to restore public confidence in pensions, we’ve set the bar pretty high and so we’ve got to go for it- even the top 30 isn’t good enough- we need a number one smash hit!

So wish us good luck and watch out on 23rd October for tweets marked #thePitch14, you never know- you might just see @pensionplaypen top of the Pitch parade.

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In defence of genius.

Derek Benstead

Genius is not just misunderstood – it is persecuted.

Those who didn’t get Copernicus, Galileo, Wordsworth or Darwin did not ignore these genius’, they set out to do them in.

Bob Dylan when he laid out his Highway 61 album was called “Judas” by his fans and Derek Benstead seems to be coming in for the same kind of treatment for his ideas on CDC outlined last week on this blog and previously in Financial Adviser.

Derek’s enlightened views on how to build a new way to deliver pension benefits, synthesizing the best of DC and DB have come in for some harsh comments

Ok so Derek won’t be burnt at the stake and in the order of game-changers, re-discovering a system of wealth distribution that was only buried 25 years ago does not win Derek a Nobel prize, but the tweets tell a story.

The story is that in the face of rational argument, certain people turn to abuse when confronted with an alternative to their value system.

And when the argument is as clearly laid out as it was by Derek Benstead, it creates a threat that can only be countered by violence (albeit of the tweet variety).

Derek is not suggesting that either DB or DC are abolished, he is suggesting that a new way of doing things (in fact a way that worked quite well last century, is revived).

I am not a genius, Benstead is. I am his impresario, making sure he takes the stage where needed and heard by the right people. I am happy to say he is being heard by the right people.

We are not firing any insults back to those who vilify Derek and those who understand what CDC is about. That would be pointless.

But when I tweeted this morning.

this blog was what I meant(apart from mis-spelling Galileo!)

Genius’ are rarely respected, they challenge received wisdom and make people feel uncomfortable. They are heralded later, usually too late. The Origin of Species and the Lyrical Ballads were as vilified as Highway 61 Revisited at time of publication. These were some of the game changers that allowed our culture to move on.

Which is why politicians, business leaders and all those who care about restoring confidence in pensions should get behind the visionary Pension Minister we are lucky to have at the helm of our ship and state and see this CDC project safely to port.


Posted in actuaries, advice gap, CDC, David Pitt-Watson, dc pensions, pension playpen, pensions, Pensions Regulator | Tagged , , , , , , , , , , , , , , , , , | 1 Comment

CDC designed by an enlightened actuary -Derek Benstead!

hello pension


When I started out in insurance my sales manager told me: “Don’t sell a solution until you’ve understood the problem.”

So far, collective defined contribution is a solution that is so short on detail we can only suppose what it will look like and how it will work. As CDC schemes will not be opening their doors until summer 2016 at the earliest, many people consider that too late, and are asking: “What’s the point?”


However, this article will explain it is not too late for CDC to help individuals and companies. It uses three case studies to explore how CDC could be successful, and runs through some of the actuarial ideas behind the solution.

But before we look at the solutions, let us try and define the problem. The problem is neatly summed up in an email I received from an IFA friend: “Who would want to give advice to most retirees?”

Small pots are best cashed in, big pots can go to drawdown. But those in the middle are just too difficult to call. Should the investor cash in and be left with nothing? Buy a pitiful annuity? See savings eroded by the costs of drawdown?

An adviser would be lucky to avoid a mis-selling claim whatever they decided to recommend. From April 2015 advising ‘those in the middle’ will be fraught with risk, and there is no certainty of earning a fee.

Without annuities in the toolbox, and with drawdown too expensive, those with less than £100k in the DC pot have few options and less advice.

The ‘squeezed middle’ needs a non-advised product that they can understand. CDC is designed to be that product. Let us look at how it might work.

Case study 1: Gary will be 55 in 2016. He currently has £60,000 in four DC pots. He has no intention of stopping working, but he is worried that he may lose his job or have to work on a zero-hour contract with less certainty of income. For now Gary wants to roll up his savings. He knows he will need them to provide him with an income but he does not know when.

Gary wants a simple, flexible solution that will give him a decent income from his investment. He decides to transfer his pots into a CDC scheme.

Case study 2: British Ball Bearings (BBB) employs an ageing workforce – about 30 per cent of them are over 50. The company wants to downsize the workforce but cannot force old workers to retire. It needs to make retirement more attractive.

Case study 3: Marigold Underwriters Ltd fund a ‘legacy’ defined benefit plan for long-serving staff and a group personal pension for newer hires. The new staff feel they get a worse deal.

When BBB asks its staff about retirement, they want advice. So BBB approach an adviser to run seminars for the over 50s.

At the sessions the options are laid out; the cash option is discussed. Many, especially those with debts, want to cash out. Those who have large pots are encouraged to look at the flexibility of individual drawdown. Everyone is offered membership of a CDC arrangement which the company agrees to offer as an alternative to the existing workplace savings plan used for auto-enrolment.

There is common consent that all staff in future contribute to a CDC plan which offers something ‘in the middle’.

After agreeing on a CDC solution, the DB scheme closes for future accrual, and arrangements are made to transfer the GPP into the CDC plan.

Solution: Gary, BBB and Marigold need a common solution – none have enough buying power on their own. Could one collective arrangement deliver an alternative for Gary and BBB’s staff, and satisfy both the DC and DB memberships of Marigold?

All the building blocks are there: the multi-employer master trust for proper governance; suppliers to meet every administration and advice need; and a pensions regulator.

What is missing is a simple and effective funding strategy that makes sure the money never runs out and that everyone gets fair shares.

I asked one of my company’s most brilliant actuaries, Derek Benstead, for his plan for the investment and funding strategy of a collective DC scheme. His response was bold, simple and seemed intuitively right – so here it is:

1) Put the contributions in an index-tracking UK equity fund.

2) Use an actuarial valuation to set target benefits of equal value to the contributions. The assumed rate of return in the valuation does not need to be debated, it can be the dividend yield, which can be checked daily in the Financial Times.

3) The annual increases to the target benefits will follow dividend growth.


The pension outcomes will, for better or worse, reflect the economic performance of the UK. CDC pensions will neither fall behind the wealth of others in the economy’s good times, nor be an unsustainable burden in the economy’s bad times.

Pensioners continue to share in the performance of the economy after retirement. They do not have to buy an annuity, which would lock them into the low guaranteed returns of bonds.

The target benefits have been set up to relate closely to the income generated by the assets, the reverse of the well-known process of matching the assets to the liabilities. The funding and investment plan is stable and should not need extensive advice and reconsideration at each valuation.

The same actuarial valuation which sets up the target benefits for the contributions coming in can be used to calculate the transfer values for members wishing to leave the scheme. Only one actuarial valuation is needed. The target benefits of a CDC scheme should be set up without bias – that is, a best estimate plan. In the probability terms used by the Pension Schemes Bill, the target should have a 50 per cent chance of being delivered. To set a higher probability would mean setting a lower target, which would be unfair on the members while the scheme is growing.

If the scheme later shrinks, there may be a windfall to the members at the time. Whatever benefit probability targets are set in regulations, CDC scheme trustees should nevertheless have a best estimate plan.

A CDC scheme can deliver an income for life based on the performance of the economy. Running a CDC scheme should be easy. This may sound like ‘fantasy pensions’, such a simple model sounds pie in the sky. But most good ideas are simple, like the changes in the Budget – and the Budget cries out for fresh thinking.

We now have a draft Pension Schemes Bill which can allow a scheme based on these principles to work. George, BBB Marigold and many others like them have the possibility of collective benefits that will help restore confidence in pensions.


This article first appeared in FT adviser

Posted in actuaries, advice gap, auto-enrolment, dc pensions, pensions | Tagged , , , , , , , | Leave a comment

Don’t get fooled by the phoney pension giveaway


The phoney give-away

The most accurate measure for the success of private pensions in the UK is the replacement ratio; a measure of what percentage of people’s pre-retirement income is replaced by savings specifically for retirement.

Steve Webb and the DWP are beginning to chart the nation’s progress from historically low levels of replacement (following the near collapse of the private sector defined benefit pension scheme) to something like adequacy.

Even by the most optimistic forecasts, any recovery will take a minimum of 20 years and though the new system of auto-enrolment for all and a return to a proper basic state pensions is likely to mean a fairer pension system overall, currently there is a huge gulf between the pension haves and pension have nots.

For the vast majority of middle Britain, there simply is insufficient in private pensions for George Osborne’s vision of inheritable pension wealth to mean anything. There is more capital tied up in most people’s garage than their pension.

Organising people’s decision making from 2015 onwards around the inheritable value of the pension pot may be realistic for the top 5% of DC savers for whom the annual allowance that can be paid into pensions (£45k) and the Lifetime Allowance that can be built up £1.25m) are meaningful figures. But most people struggle with the auto-enrolment proxy of 4% of salary and the average pot is £30,ooo, about 1/40th of the maximum allowance.

So George is kidding us and for those in the pensions industry trying to get some sense into people’s financial planning, it is deeply unhelpful for the Chancellor to be parading tax hand-outs  for the super-rich as incentives for the pension poor.

We are not pension affluent, as a nation we are pension poor and we need to look at other ways to solve the problem than kidding people otherwise.

Corroding the good work of the past five years

There is another way of approaching the pension problem. It is not as sexy and it may not be as politically attractive, but it is the responsible way.

The underlying problem facing the nation is that we are living longer, we are not getting wealthier in retirement, we are getting poorer, having to work longer , facing the uncertainty of long-term care and the ignominy of decrepitude without the means to be self-reliant.

Those who die in the first few years of retirement (and 75 is still pension young) may give their kin a fillip (estimated at an average extra legacy of £500) but they will be few in numbers, only a few die young.

To qualify for this extra legacy , you must be planning to die young and risk living long. For you will have to keep your money invested in your own pot. It looks unlikely that you will get any benefit from the Chancellor’s generosity from any form of collective pension-(annuities, defined benefit or collective DC).

That is because all three of these means of receiving a pension are based on a mutual pool which works by people collaborating and putting aside their obsession to beggar their neighbour.

An unfair policy which will only benefit the  “pension super-rich”

This might seem obvious and it would be were we not so dead set on aspirational wealth. The idea of individual self-reliance is conceptually attractive, it plays well at conferences, with the media and at the hustings.

But there is a dirty underbelly  to the “I’m alright Jack” world of George and his right wing associates. For them it’s every man for himself and bugger the consequences. The consequences are seldom felt by those in power, they are inherited by those who have no power.

At a time when Defined Benefit pooling is on its knees, annuities “a dirty word” and the new-pooling of CDC still in gestation, the Chancellor’s craven use of populist pension policies to see off UKIP and secure political brownie points with aspirant Britain is nauseous.

The obvious solution

There is a very simple way of taxing with the transfer of wealth from generation to generation, it is inheritance tax. Inheritance tax, were it to be applied to pensions would only impact the genuinely wealthy. It would not give an exemption to those super-rich under 75 , it would tax them on their pension wealth, it would give the same exemption to those with total wealth below the IHT threshold (currently £325,000 for singles – £650k for couples)

By using inheritance tax to determine who paid tax when people die too soon, we would have a system that was fair across DB , DC and DA, the residual values of “pooled” pensions are of course zero, this means people inherit nothing but get no tax-bill. The residual value from individual drawdown will be easily valued and will only be taxed where the overall value of the estate is sufficient to leave a meaningful legacy to the next generation anyway.

So what does this mean?

George Osborne is, by exempting DC in drawdown for those dying under 75

  1. building in unnecessary complexity into a tax-system which is fit for purpose as it stands(IHT)
  2. creating an unhelpful bias in the guidance system towards individual drawdown and away from pooled solutions
  3. kidding the population that it is pension wealthy (when it is not).

Some good people have praised the Chancellor for his giveaway, people that include Ros Altmann and Malcolm Mclean, but I think they too have been fooled by George’s blandishments. The £150m pa giveaway will be focussed on a small band of high-net-worth individuals using drawdown who have the misfortune to die before they are 75, for the rest of the population , the £150m will pass them by.

Don’t get fooled by this tax-break, it is almost certainly not going to break in your direction. Let’s get on with the business of restoring confidence in pensions through better savings, better products and better education and not be diverted by political shenanigans from a Chancellor who should know better.

Posted in annuity, Politics, Public sector pensions | Tagged , , , , , , , , , , , , , , , , , , , , | 4 Comments

Annuities get another kick in the goolies


What’s the story?

The Chancellor will announce in his speech at the Tory conference that he will put a stop to the 55% tax on pension pots not spent at death.

The Treasury announcement on what detail we so far have is here.

If you die before 75 your nominated beneficiary gets your pot tax free

If you die after 75 your beneficiary pays tax on your pot either at his or her marginal rate (if its paid in instalments) or at 45% if they take it as a lump sum. The intention is to move to rationalise this by 2017 into a single system based on marginal rates.

What’s the point of the changes?

The point of the 55% tax was to stop pensions being used as a tax-shelter for the uber-rich who don’t need any more income in retirement and to encourage people to insure against old age by purchasing longevity protection (aka a pension annuity),

But like annuities themselves, the Chancellor no longer sees the point.

With staggering percipience, the BBC report that Osborne will  say

“People who have worked and saved all their lives will be able to pass on their hard-earned pensions to their families tax free.

“The children and grandchildren and others who benefit will get the same tax treatment on this income as on any other, but only when they choose to draw it down.

“Freedom for people’s pensions. A pension tax abolished. Passing on your pension tax free.

“Not a promise for the next Conservative government – but put in place by Conservatives in Government now.”

The small print will emerge in the Autumn Budget. A price tag of £150m a year will attach to this giveaway, to be shared by around 320,000 inheritors a year (a tax saving on average of £500 per pension pot).

There’ll be immediate pay-back if it leads to Conference talking about popular budget reforms and not defections to UKIP.

It will certainly go down well in the City who will see this as another boost to the “wealth” industry and a kick in the goolies to those advising on pensions – whether annuities, defined benefit or defined ambition. It will do nothing for the sale of Lamborghinis.

What sceptics will be asking

It seems to me a policy that begs further questions;

1. Is this really a hand-out (as it seems at first sight) to the filthy rich?

2. Is this part of a wider move towards self-funding of long-term care?

3. Is this just a gimmick that masks the horrible inadequacy of pension savings and the probability that most people not buying an annuity will outlive their savings?

4. Will death benefits become another reason to want to “liberate” DB  (and in future DA) plan benefits?

No doubt these will be the questions Rachael Reeves and Gregg McClymont will be asking from the Labour benches.

What this will mean in practice

For me, this tax-change is headline grabbing but not substantial. The Chancellor is taking a bet on feckless behavior by the British pensioner at retirement, the savings to the tax-payer are dwarfed by the tax-take on pension busting by those “taking it all at once”.

So the chancellor is already relying on people behaving in their worst financial consequences, this measure panders to the shallow optimism of those parts of the financial community who see pensions as wealth rather than insurance. It is irresponsible

The tax-change could lead to bad social consequences, especially between those in a family who would benefit from annuity purchase (the people who own the pension pot) and those who won’t (those inheriting the pot).

If you of an age, ask yourself how you would explain to your kids that you’d just signed away their pension by buying an annuity.

If you are young, ask yourself how you’d react to hearing of plans by your parents to swap your pension inheritance for an income stream that ended when they did.

Such questions do not feature in the wealth manager’s list of considerations, (for it is the wealth managers not those insuring against poverty who will applaud the Chancellor).

The real winners

It will be the readers of the Mail, not those of the Sun (or those that cannot read) who will be cheering this giveaway. But the real winners will be those with massive Self Invest Personal Pensions for whom DC pension plans are primarily a tax-planning wheeze.

I worry that this is how UKIP impacts policy, let us hope that the “I’m alright Jack” self-sufficiency of middle England is not just a chimera. Middle England is not alright when it comes to retirement income and to suggest that pensions wealth is likely to cascade down the generations is to hide the reality.

The wrong message

Most of middle England is debt rich, housing rich and income poor and this policy does nothing to help people plan for old age; it is a kick in the goolies for “pensions” and a kick in the nuts to those trying to deliver financial education responsibly to those in, at or approaching retirement.

So for all the applause it will receive at the Conservative Party Conference, this giveaway leaves me with a pain in my lower stomach.

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Ros Altmann on why the over 60’s are missing out on “free pension money”


Ros Atmann recently told me she wished she could blog like me, having read this blog, I wish I could write like her!

Huge numbers of over 60s are opting out of pensions auto-enrolment, losing their employer contribution

Budget pension reforms make pensions a no-brainer for most older workers as they can simply take the cash if they want to

Need for financial education and advice greater than ever


Figures just released show that nearly all younger workers are remaining in their employer pension scheme‎ after being auto-enrolled, but many older people are opting to leave.

According to NEST (the National Employment Savings Trust) 28% of over 60s are opting out of auto-enrolment, while only 5% of under 30s are turning away from pension saving.

As this week marks the second anniversary of the start of auto-enrolment, it is certainly encouraging that so many are staying in, however it is worrying that the older workers, who will benefit soonest from their pension savings, are not taking advantage of the free money from their employer.

So why are so many older workers deciding to opt out?  I can suggest some possible reasons:

  1. Fear it’s too late to put money into pensions: Many older workers may not have any pension savings at all and may feel they have left it too late.  Perhaps they have always heard that it is best to start saving early, so they feel they cannot benefit, while younger workers still have many years of saving ahead of them.  However, it’s never too late to save and auto enrolment is a very attractive proposition for most people.  Indeed, especially for those who do not yet have much pension saving, staying in auto-enrolment should be beneficial.
  2. Don’t realise that auto-enrolment means ‘free’ money:  Under the terms of auto-enrolment, every £1 that workers contribute to their pension immediately doubles to £2 (less charges) – with the extra £1 coming from their employer and the Inland Revenue tax relief.  There is no other savings product which doubles your money on day one.  Those who opt out are rejecting ‘free’ money.
  3. Don’t realise the Budget reforms mean they don’t have to buy an annuity and can spend the money freely:  Perhaps the over 60s don’t realise that the Budget changes mean they can double their money and then should be able to take the cash out and spend it after April 2015.  As they will no longer have to buy an annuity, or drawdown, they will usually be better off if they stay in
  4. Fear of means-testing penalties:  Some older people may be concerned that having money in a pension will affect their ability to claim means-tested benefits.  Certainly, before the pension freedoms announced in the Budget, this could have been an issue, but under the new regime anyone affected should be able to take their money out and spend it, and they will also have the employer contribution to spend as well, which would otherwise be lost to them, so they are better off staying in.
  5. Already have good pensions:  Perhaps many of the over 60s think they already have good pensions in place, so they don’t need any more.  However, even if they have other pensions (unless they have reached or are close to the £1.25million lifetime limit), they would normally be best advised to stay in as they are turning away free money by opting out.
  6. Distrust pensions: Perhaps the older workers distrust pensions so much, after hearing about or experiencing some of the scandals in recent years and this has put them off pensions altogether.  Younger workers may be less directly affected by these.  It is also the case that new-style pensions are much better value than many older pensions.
  7. Can’t afford pension contributions:  Some older people may feel they need every last penny of their salary and cannot afford pension contributions, however, it is difficult to imagine that so many more older people are struggling than the under 30s, where opt out rates are so much lower.  Therefore, this is unlikely to explain the large age differential in opt out rates.
  8. Don’t believe the reforms will last:  Maybe the older workers are more cynical than the young and don’t trust the Government to leave the pension reforms in place, fearing that the freedoms will not last.  They may be afraid of being unable to take the money out, or being forced to buy particular products again in future, having seen so many pensions policy changes in the past.

So, if they don’t trust pensions, or don’t trust Government policymakers, this could explain the high opt out rates.  It will, therefore, be important for Government and employers to help their older workers understand the benefits of pension saving and the risks of opting out of auto-enrolment if they want  to reach those coming up to retirement soonest.  Improving financial education would clearly help too.  Of course, anyone who is unsure about their position would benefit from taking independent financial advice, but for most older workers, the employer contribution coupled with the Budget pension reforms make pension savings a ‘no-brainer’.

Assuming nothing else changes!

Posted in accountants, annuity, auto-enrolment, Flump, pension playpen, pensions, Pensions Regulator | Tagged , , , | 6 Comments

“My pension offer” – explaining CDC to a confused public!

John Ralfe

Confused or confusing?

John Ralfe has been expressing his frustration that none of the CDC champions have made him a two page offer to tell him what a CDC pension offer might look like.

I’ve not done this yet, partly because I’ve been thinking about it and partly because I’ve wanted to hear from others more expert than me on what I might be able to say.

But I think it’s right to hold yourself a hostage to fortune and rise to this challenge, so this is what I’d want to read before I invested my DC pension savings in a DC Scheme.

Mr Plowman

Thanks for your enquiry.

I am the proposition manager for this CDC pension and this is my proposition to you. It is the same proposition I make to all prospective members as this pension plan does not pay inducements to some and charge commissions to others.

My offer to you at your age (60) is to pay you a pension of £1,000 for every £20,000 you invest in my plan. For every £1,000 you give me , I will offer you a pension of £50 a year for the rest of your life.

It is my intention to increase the pension I pay you every year in line with inflation (as measure by the consumer price index.

These pensions assume you do not want a pension to continue to your partner, spouse of any other dependent, I can give you an offer for these options and this will depend on their ages.

I want to make it absolutely clear that I am not guaranteeing you these amounts in year to come. It is likely that at some stage I will have to reduce  your pension. Based on our financial modelling, I would have to have done this three times in the last 100 years; at the time of the Great Depression in 1931, during the Second World War and during the Suez Crisis in 1956. The nearest we’d have come to cutting benefits since then would have been the Banking Crisis of 2008. You may have heard that in Holland some similar funds actually did cut benefits by up to 7%.

My estimate of the amount I can pay you is based on educated guesses about how things will be in the future. I have much more confidence that these guesses will be right over the long-term than the short term. I have very little confidence that I will be right year are after year. In fact I  predict that I will be too optimistic 50% of the time and too pessimistic 50% of the time.

The good thing is that I can afford to be wrong within certain tolerances. It is only when I am out by a wide margin that I will have to reduce benefits. I estimate that on average this will happen once every 40 years.

The rate I am offering you is around a third more than you can currently get from a comparable annuity. You may think that this is a little over-optimistic but there are sound financial reasons for this rate being higher.

Firstly the cost of guaranteeing you benefits is very high and probably accounts for half of the extra pension I am offering you. The reason guarantees cost so much is that not only do those offering them have to set money aside (reserving) but the investment strategy to back up the guarantee will not offer the same long-term returns as I can hope for.

Secondly, I am able to treat you as one of thousands of people in my plan and your money is pooled with the money of thousands of others. The economies of scale I get from you all means I have lower costs and can pass these on to you through a better rate.

What is more, I do not have to worry about you living too long as an insurer offering an individual annuity has to. Your life expectancy is part of a big pool of life expectancies I have to manage and I am able to allow you to insure each other. This pooling is very efficient, again I do not have to set aside money for you as you are insuring each other!

So there is nothing “magical” about the better rate that I offer, it is achieved by treating you as one of a large crowd and it comes because I am guaranteeing you nothing.

Having read this, you may be reconsidering investing in my plan. If you really value the guarantee or want the freedom to invest as you like, you should look at other options.

There are one or two other things I’d like you to know about my offer.

Firstly, I promise to treat you fairly if you decide you want to leave my plan. You can take your money from me and reinvest in an annuity, invest in a drawdown plan or go and buy your Lamborghini. I won’t try to stop you by placing transfer penalties and you’ll get a fair share of the fund based on your initial investment and how the fund is faring. If the fund is faring worse than I’d hoped , you might find that the fair value is depressed and if it’s doing better , it may be slightly better than you’d expect.

Your expectations should be based on using the calculators I will provide you with which will show you what I think the normal transfer value will be. Your transfer will only be lower or higher than the normal transfer funds in extreme circumstances.

Finally I would like to say a little about how we pay you your pension. There are two ways in which you can receive your payments “taxed” and “part taxed”. The taxed version assumes you have taken your entitlement to a “tax-free lump sum” and I will tax your pension under PAYE as earned income at your highest marginal rate. The “part-taxed” version assumes you haven’t taken your tax-free cash and I will pay you a quarter of your monthly payments “gross” of any tax with the rest fully taxed.

The choice you take should be based on whether you need your cash early or are prepared to wait, waiting will be more rewarding as you will have part of your money invested tax-free for longer.

The decision you take shouldn’t be taken lightly. We would like the opportunity to talk further with you about our plan and you can call us to discuss how it works, mail us or look at our proposition in more detail.

I hope you have found this explanation helpful and that you feel it properly explains why I run the pension the way I do. Thanks for your attention and engagement.

Yours sincerely

A Friend of CDC

This article first appeared in

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The value of regular savings

man from pru 2


60 years ago, a revolution happened in the savings industry- it was the “standing order”. The standing order became the “variable direct debit” and people were able to establish regular savings plans which worked like magic, taking money from your bank account without troubling you at all.

My mother used to buy me savings stamps from the post office which I stuck in my savings books and a man from an insurance company used to call at our house and take money from my Dad. I remember these things from childhood.

But when I was 17 I got an evening job and started saving with Sun Life of Canada £10 per month into a maximum investment plan, this was by direct debit and the policy matured ten years later and paid off my first big self-employed tax bill.

A man , not much older than me, came to our house and he spelt it out to me over the dining room table. I remember that meeting so well. He set up a standing order for me, it was from the bank account my mother had made me set up when I started bringing home cash from working with John Heanon, felling trees.

I have always considered the direct debit or standing order as the most valuable part of a savings plan and I now consider the capacity of payroll to make deductions on my behalf into ISAs, pensions and even credit union savings accounts, as pretty wondrous.

What you don’t see , you don’t miss and it’s been part of my financial DNA to save 10% of my salary since the man from Sun Life of Canada suggested I did so in 1977.

As I’ve got older, I’ve discovered the value of saving into equity funds. The value of some of my savings (those that weren’t blighted by high charges) are now- 20-30 years on , out of all proportion to what I paid in. Even taking into account inflation, I have done really well by saving into share-based plans.

Part of this was because of great months when I bought when shares were depressed, thank goodness I did not panic and stop saving in 1987 (a few of my clients did).  Again, I heeded the things I was told about pounds cost averaging and kept my nerve.

All this doesn’t make me Warren Buffet, but it proves to me that the simple lessons that I was taught when in my earliest years and through my teens were worth listening to.

When I sold savings plans, I told people that saving between 5 and 10% of their earnings into a plan would build them a vast capital reservoir by the time they got to their fifties. Relative to some people, I don’t have vast capital, but I have capital to meet emergency needs and the means to pay myself a proper income when I wind down from work.

I worry that the simple messages I was given are obscured today by over-elaboration. I hear talk of financial education including detail about swaps and options, of people being taught about the properties of different types of bonds – of understanding the meaning of a yield curve.

Other people fret about debt, especially student debt- I saved to pay off my debt (to the taxman) and I suspect that good savers do not get into so much debt- they know the value of financial security.

Other give you sage tax advice, suggesting that tax is the primary driver for saving and that you should time your saving to mitigate tax.

Nothing- to my mind- replaces the importance of regular saving, and saving meaningful amounts- at least 5% and better 10% of gross income. If you do this, you won’t go far wrong.

man from pru

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What’s that coming over the hill…? NAPF CDC DEBATE #Fail

whats that coming over the hill


The NAPF CDC Debate

The debate on how we organise our retirement incomes from our pension savings was not progressed at the NAPF’s CDC focussed pension connections meeting last night.

A half filled room witnessing a debate between two “Pale Male and Stales” was never going to set hearts beating and predictably we got a peremptory dismissal of CDC as “magic beans” from one participant and a limp eulogy for a vision of pensions that faded in the nineties, from  the other.

That I can’t report names is because there was, apparently, a no-tweeting, Chatham House policy in place. For the sake of the participants this is just as well. The world outside the NAPF’s offices would have fallen asleep had they been forced to sit through that drivel.


What’s that coming over the hill?

To address the question in hand …

CDC has a natural place among the pension options available to those with DC pots and past 55.

If set up as a Regulatory Own Fund (Rof) like the PPF , a CDC scheme will be able to take your various DC  pots as transfers and offer you a lifetime income stream in return.

Pound for Pound, the offer will be higher than annuities (though it will not be guaranteed).

Unlike using an individual drawdown policy, a transfer into CDC will not require you to do anything to monitor and manager your income, you will not be required to take investment decisions, you will hand over the reins to fiduciaries who will do that for you.

Wrong monster – John

“Fiduciary” is a latin word meaning “those who we trust”. CDC relies on us trusting others to do what they say. The chief tactic of those who attack CDC is to deny that we have any trust left. And yet millions of working people trust fiduciaries to pay them pension benefits. Were trust to be taken away we could label all defined benefits schemes including the state pension and the unfunded and funded taxpayer sponsored Government schemes no more than Ponzis.

The reality is that we all trust experts to pay us pension benefits, even the experts trust other experts because no pension expert can be expert in everything. Pensions are about future promises many years hence- without trust there can be no pensions and without pensions , we have no financial security.

CDC is the trusted means by which those who want a decent retirement stream from a trusted source will spend their retirement savings.

Wrong hill – Hamish

CDC is not going to work as a mainstream alternative to DC accumulation. Not because it cannot do so, it can. But we have a fit-for-purpose means of building up capital prior to spending it which is working very well. Ripping out your kitchen a couple of years after installing it isn’t the answer and ripping out workplace pension schemes no sooner than you’ve converted them for auto-enrolment isn’t the answer either.

There may be a purpose for CDC as an accumulator later (think New Brunswick) but that’s not on today’s agenda.

Where employers are concerned is at retirement. They have worked out that we have gone from an at retirement regime where we gave no choice (annuities) to one where we give people freedom to choose options many of us have no wish or ability to buy. I don’t want to swap retirement security for a Lamborghini and I don’t want to spend hours worrying about the investment of my saving and how I cope with living too long.

There are many people who will want to self-manage their savings but I’m not one of them and I suspect that in their heart of hearts, most people, were a fiduciary solution available, would choose it.


Another chance goes a begging

What is so frustrating about debates like last night’s is that they force people who are interested to listen to people who aren’t interesting. The PMS brigade must move on and allow some fresh thinking.

Employers, Trustees, Master-Trustees, IGC,TPAS, MAS and any other agencies sign-posting people at retirement need a safe-harbour option for the people who don’t want to do it themselves , who aren’t reckless but ordinary decent folk wanting a long-term income stream in retirement.

The vast majority of DC pots and the majority of DC capital is not in your employer’s scheme, it is in schemes from past employers or in your personal pension you set up yourself. What use is your current employer to you with regards to this money?

The NAPF and those who speak for it continue to couch the debate in terms of  the employee/employer relationship but in truth it’s not. At retirement you are on your own, standing looking up the road to see what’s coming over the hill.

Let’s make sure it’s the right kind of a monster on the right kind of hill.


This blog first appeared on  .. a bit male- not pale or stale!


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Auto-enrolment; – tPR’s despatches from the trenches


Auto-enrolment is like Flanders in 1914.  Those wishing to see universal adoption of workplace pensions within Britain’s employment structure are digging in for an onslaught that has barely begun.

Our Ypres’ and Passchendaeles’ are yet to come. We are still in the phoney war.

staging profile

The latest update from the Pension Regulator on the progress of the grand plan to enrol 11m of us into workplace pensions makes interesting reading both for what it tells us, and what it cannot tell us.

what's happened so far

What it cannot tell us, but we need to know, is how many of the April 2014 stagers have now declared their compliance. Unofficially, we believe the number is 93.6% but this has not been officially release. TPR are sanguine as they know a large proportion of the missing numbers relate to employers with multiple payrolls, who may have declared overall compliance and not itemised compliance per payroll. They also think that some employers enrolled employees into Local Government Schemes and have not been verified by providers.

It is to the Regulator’s great credit that it is facing the challenges of information candidly and sharing its numbers as best it can. There may be shortcomings in its intelligence but they are minor.

I am encouraged by the Regulator’s willingness to involve itself in the nitty-gritty of data transfer and help the market to get through the capacity crunch signalled by the alarming purple lines that dominate the staging horizon from the end of next year.

The Regulatory framework that governs workplace pensions is in a mess.

I am not  happy with the Regulatory position on the pensions into which these 1.3m employers and 11m employees will be invested.

While we may remain compliant in terms of the administrative process, are the pensions into which we are investing improving?

The answer is that we do not know and in terms of  Regulation, advisory capacity and employer empowerment, we seem to have hardly dug in at all.

For example, we do not know  how many of the workplace pension schemes established to date are compliant against the minimum standards to be implemented in 2015.

More alarmingly, we don’t seem to have a regulatory framework in place that can give tell us what compliance (let alone best practice) looks like.

There is here a Regulator problem (more than just a regulatory problem). The voluntary framework that governs occupational master trusts (which are increasingly becoming the preponderant workplace pension) appears to be changing. Here is the vision as outlined by tPR earlier in the year


Here is the triangle as it was presented to Friends of Auto Enrolment on Thursday of last week.

TPR framework

Anyone trying to make sense of the Pension Regulator’s position with reference to these diagrams is in for some difficult hours of study! I have to put my hands up and admit defeat!

It’s not all bad..

On a positive note, it is good to see the idea of member outcomes being re-introduced at the top of the mix and its good to see the Pension Regulator reminding us what makes for good DC outcomes

Good member outcomes

But the rest is hapless

Behind these six elements are the woolly “principles” and behind them the 31 characteristics by which no adviser can educate nor any employer choose or review a scheme.

The ICAEW’s MAF document has much that is good about it, but it has not been designed to integrate with the workplace pension system going forward. It is not joined up to the DWP’s minimum standards (see below)  and is inconsistent with the IGC proposals. It is a bit of a white elephant.

So where is all this leading?

It seems that voluntary compliance against this uber-complicated governance structure has become an end in itself. If I’m right, then  the MAF will become no more than an upgraded version of  PQM , at best a  pensions equivalent of IS 9001,

This statement that appeared in the Regulator’ slide-deck suggests that two years and 4.4m people into auto-enrolment, we are only at base camp and that many of the mountaineers are climbing another mountain!


Good for Peoples Pension, but what does this say to the person in a Standard Life GPP?

This framework is too late, too complicated and totally fails to help those of us trying to advise, to do our job. How can we engage, educate and empower in such an environment

This  a voluntary code looks set to become a marketing badge rather than the DNA by which a pension scheme is run.

By contrast, the FCA’s IGC proposals , which adopt “value for money” as the central theme, are understandable, meaningful and mandatory.

I cannot see how a voluntary code for master trusts and a compulsory code for contract based plans sits within an overall framework based on the Pensions Acts and the DWP’s Minimum Standards. In a world where every company has, by law to have a workplace pension plan, such widely differing governance systems for GPPs and master trusts only serves to confuse.

Is this MAF any practical help today or from April 2015 ?

From April 2015 we are being asked to  apply the DWP’s minimum standards with reference to the master trust assurance framework and I cannot see how we can. Two out of the three leading master trusts have charging structures that are openly non-compliant with the 0.75% charge cap (NEST and NOW), others such as Friendly Pensions have followed suit.

The skill and knowledge needed to properly understand the costs that members meet from the Net Asset Value of their fund isn’t addressed by the ICAEW’s MAF, indeed any reading of the MAF and the IGC consultation would not suggest that their two authors had ever met.

In conclusion…!

All of which supports my earlier call for us to merge at least the DC divisions of these two Regulators.

So much for Regulation on workplace pensions -what about advice?

Coming back to the state of auto-enrolment, which of course is a different issue than the state of workplace pensions, the Pension Regulator’s enforcement team have some interesting research on who smaller employers are going to turn to for help on the staging of their workplace pensions.

Who will employers turn to

The obvious conclusion is that accountants are increasingly going to hold the keys to auto-enrolment. The 74% of micros who claim accountants as their gurus are almost all going to be looking for a one stop shop for both auto-enrolment and payroll services. Infact the 78% figure is simply a reflection that most micros outsource payroll and HR to a business services manager who effectively runs the back office. So how ready are the accountants?

Accountants 2

Most accountants are intending to offer the administrative services, but when we look more closely at the services offered or planned to be offered by accountants we discover that they are mechanistic and relate to the integration of HR and Payroll systems and compliance with regulations.

Accountant intentions-tpr1

When it comes to the more pension related activities which touch on member outcomes 60% of accountants have no intention of getting involved.

All of which leads me to believe that the problems we will have with auto-enrolment are only being partially addressed.

With the regulation of workplace pensions being split between two regulators with radically different governance frameworks, with IFAs showing little appetite to involve themselves in the business of choosing or reviewing a pension, who will be “expert”?


So who is going to advise?

The Regulator would like advice on pensions to only be given by those with skill and knowledge (though no definition of what makes for a skilled or knowledgeable person has been put forward).

We know that this advice – so long as it is confined to business to business conversations is unregulated

workplace advice

In theory anyone can advise, but without any clear direction from the Regulator , no reward from the workplace pension providers and no incentive on employers to take advice, it is no wonder that the advisory market for SMEs and Micros looks as shrivelled as a salted snail.

And are we any closer to empowering our employers?

With such confusing information on what makes for a good pension and such vagueness as to who should be offering advice, it is likely that the OFT’s observation that


will continue to apply.

Until we can find a way to get Regulators to engage, advisers to educate and small employers empowered to make good decisions on behalf of their staff, the “buyer side of the DC workplace pensions market will remain auto-enrolment’s weakest link.

Despite these headwinds, we at remain confidant that a way forward will be found, we just wish we didn’t make life so difficult for ourselves.

Mind you, by comparison to the strife of our forefathers, we can count ourselves very lucky. I am confidant that by 2018 , as we did by 1918, we will win this (not so bloody) war!

Our trenches are imaginary, our struggles mental and the stakes we play with a whole lot lower, so we remain playful!


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After the 2014 earthquake, the 2015 Tsunami – great guest blog from Ralph Frank


The sheer scale of changes to the UK (defined contribution) pensions environment that have been announced in 2014 was not foreseen at the start of the year.  Some of the measures proposed during the year, such as the charges cap, followed from pre-existing processes.  Other announcements caught most by surprise, particularly the freedoms set out in the Budget.  The full force of many of these amendments will only be felt in 2015, as the announcements come into binding force, although changes in behaviour have already begun to emerge.  The re-shaping of the environment is going to sweep some participants away but there is also opportunity for others to ride this massive wave to their advantage.

The change that has garnered most of the headlines was that of the freedoms announced in the Budget.  These freedoms do not, however, change the fundamental issue faced when transitioning from saving to consuming those savings – how to turn accumulated pension savings into income provision through retirement.  The freedoms did not eliminate the requirement to purchase an annuity at retirement – that change actually took place back in 1995!  The fall-off in the volume of individual annuity sales and the share prices of many annuity providers post the announcement seemed to indicate that 19 years of reality sunk-in over a few short days.  The recent publication of the latest round of the retirement income market study by the Financial Conduct Authority’s (“FCA”) was critical of many annuity providers.  This criticism has added to these providers’ ‘annus horibilis’, making the Queen’s 1992 seem like a positive walk in the park for some. 

Savers will be able, but not compelled, to access free (at the point of delivery), impartial guidance through the ‘Guidance Guarantee’ announced in the Budget.  Further detail regarding this guidance has been announced subsequently, most recently in the FCA’s Guidance Guarantee Policy Statement.  There are some outstanding issues to be addressed before The Pensions Advisory Service and the Citizens Advice Bureaux begin providing guidance telephonically and face-to-face respectively, in less than four months’ time. 

The more significant changes, to my mind, followed shortly after the Budget in the form of the ‘Better workplace Pensions: Further measures for savers’ Command Paper.  This Command Paper addressed issues related to governance and charges, both of which had been consulted on during 2013.  The governance-related changes will manifest in the form of mandatory Independent Governance Committees  (“IGCs”).  The IGCs are intended to protect the interests of savers in contract-based arrangements from April 2015.  These changes might well impact the composition of trustee boards in trust-based arrangements too.  April 2015 will also see the introduction of the charges cap of 0.75% p.a. in the default option of Auto Enrolment Qualifying Workplace Pensions.  There remains much work to do, beyond the yet to be finalised measures due to be implemented in April, around the issue of cost and fee disclosure within the pensions and wider investment industry.

The summer of 2014 brought the Queen’s Speech, containing the announcement of upcoming legislation around ‘defined ambition’ and risk-sharing/collective pension arrangements.  The resulting Pension Schemes Bill is now making its way through the parliamentary process.  The changes to the pensions landscape resulting from this Bill will likely only be felt from 2016 – so there is less urgency in this regard as far as 2015 is concerned.

Autumn saw further changes around the taxation of defined contribution pensions during decumulation and after death.  Corresponding changes for the tax treatment of annuities on death were announced during the Autumn Statement.  The net result of these changes, as well as those announced in the Budget, will be to increase the attractiveness of defined contribution pensions as a savings vehicle once the changes take effect in April 2015.

The level of activity in the UK pensions industry has not been confined to the changes set out above.  There have been a number of consultations related to these, and other, issues too.  The Independent Project Board is due to report back on its audit of charges and benefits in legacy defined contribution workplace pension schemes by year’s end too.  All in all, it’s been a busy year!  The shock waves unleashed in 2014 will reach land in 2015.  Who will be swept away and who will be well-positioned to ride these forces to their advantage? 

Season’s Greetings and all the best for the momentous year ahead.

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Gillett – the best Man U can get – #ytfc scoop prize tie!


It was nothing like this at all



Regular followers of this blog will know that it supports Gary Johnson’s Green and White army.

This has proved quite difficult this season,  at times under the adjusted handicap of the First Actuarial Monkey League, YTFC have been the worst team in the league , pretty rubbish for a team that has just been relegated from the Championship.

But we can forget about our poor league form (at least until Saturday) as we contemplated the arrival of  Manchester United at Huish Park on January 4th to play the 3rd round of the FA Cup. Ticket details here

Last night had everything I have come to enjoy about a home game this season- a cup of bovril at half-time.

Just when we thought it could not get any worse, it got a whole lot better and thanks to a couple of lat goals at the away end (dimly seen through the rain) we made it past the might of Accrington Stanley. You can read an excellent match report here

The Huish was packed, save for the away end which wasn’t. Clearly the delights of a Somerset night out proved unattractive to the denizens of Accrington.

My favourite headline this morning is from the Express (thanks Ciderspace). Simon Gilett will never score a more timely goal.


My trusted colleague Colin and I drove back to London  with a warm glow I had not experienced since the win against Sheffield United that secured us a place at the Play Offs in 2012.

Colin is a true United fan, living in Basingstoke today and abroad for much of his life. To give the lad his due, he did visit Chester once. He kept his mouth shut in the Thatchers and I explained he was a Crewe fan looking to see how former Crewe striker Leitch-Smith was getting on.

I needn’t have bothered, the Huish was full of strange people wearing all kinds of footballing clobber including a man wearing a Manchester United bobblebee hat- I ask you. The trouble with us at Yeovil is we still enjoy it!

So if you are thinking of turning up on the 4th and waltzing in, you’d better get yourself a token from last night and one for Saturday too. There isn’t even going to be standing room for the United Game.

All this tells me that even when we have a poor side- and we do this season- there is always hope that something amazing will happen. Hope really does spring eternal and so long as your expectations are low, your enjoyment will be high.

joe edwards what a feeling

There are over 50 more pictures of last night here

My son started life a Chelsea Fan and at the age of 6 switched allegiance to the Glovers, he is the better for it. He may have a nasty tendency towards the Johnson Out camp, he may have failed to make the 250 mile round trip last night and he may have chosen Ascot ahead of his Huish duties on Saturday, but he is Yeovil True.


Colin may not be seen again in the Huish after the first Sunday in January, but he is an honorary Glover till match-day. Silence is golden and duct-tape in Silver Colin.

I was going to write something philosophical at the end of this blog – but I’m on my way to Leeds and have 54 emails to deal with, and I’m as happy as Pharrell Williams. So I’ll leave you with the immortal rendition of Yeovil True that belted into a damp Somerset night as we drove off last night.

Roll on January – anything might happen


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How Government can ensure capacity for good pensions advice and provision


There are concerns over whether the UK has enough spare power capacity over the coming years. So to ensure the lights stay on the government is offering electricity producers a “capacity payment”, which is a payment simply for having power available at peak demand times. An auction will be held to see which producers gets the capacity payment.

There are also concerns over whether the UK has enough financial expertise to meet the demands of a maturing nation with pension freedoms they have never before enjoyed. I haven’t heard of any adviser getting paid just to be able to adviser or any workplace pension provider being paid to offer workplace pensions.

(Sorry… let me rephrase that- I have only heard of one pension provider being paid just to be there and funnily enough it is a Government quango called NEST.)

Why is financial services different from UK power?

The answer is that the product we produce from burning coal, smashing atoms or driving water through turbines is clearly definable- it is called electricity and it is easily measurable in terms of quantity. The quality issues surround the bi- products of production, pollution, radioactive waste or the environmental scars of windfarms and dams.

Our concern for financial services is that the outcomes of the decisions we take today, may not be known for decades. We are not good at predicting these outcomes (see yesterday’s blog) and so we set up regulatory systems that attempt to control the sell side through codes of practice that try to “treat the customer fairly”. We prescribe what the financial products we buy look like and are charged at through price caps and statutory governance (IGCs). In short, instead of paying people to be good , we force people to pay not to be bad.

In return for regulatory compliance, people , firms and multi-national insurance providers are free to practice in the UK, playing as they like in our markets. Some insurers choose to cherry pick, some prefer to bottom feed. Some advisers advise the wealthy, some engage with auto-enrolment.

At first sight, capacity for power and financial services seem very different things.

Taken over the long-term, the two industries are not that different. The product experiences surges in demand and long periods where “not much happens”.  The quality of the service must be maintained throughout. There is a public service obligation on our power providers and on our financial services companies. There is a cost to maintaining capacity in Financial Services as there is in electricity supply.

Where are the surges for financial services?

We are about to see two surges, the next twelve months will see a surge in interest in the spending of pension pots with demand for advice and guidance on drawdown- annuities and the cashing out of pension plans set to rocket.

2016 and 2017 (and to a lesser extent next year) will see an explosion in demand for workplace pensions – in particular for their installation into over 1m small employer’s workplace infrastructure.


How does a Government ensure capacity?

So far the answer has been to establish NEST, a £400m investment in pensions infrastructure which is the safety net if all else fails. The difficulty with NEST is that the larger the investment, the greater the temptation for Government to use it as a means of closet nationalisation.

If NEST becomes a cuckoo that eats the eggs of other wildfowl then we will have a very plain pensions ecosystem. It is therefore incumbent on Government to encourage diversity and ensure that smaller providers can compete against the cuckoo that is NEST.

As regards the Guidance Guarantee, this too will be delivered by Government funded quangos, TPAS and the Citizens Advice Bureau (with help from a third- the Money Advice Service).

As the heads of these quangos are keen to point out, a 30 minute guidance session is not going to solve people’s financial planning for 30 years. The Guidance can at best point them in the right direction, towards products and services that are useful and broadly suitable.

Neither NEST or the Guidance Guarantee can be exclusive, there must be private capacity behind the Government behemoth, to pick up the demand and ensure a properly function system of choice through competition.

So far I have seen very little recognition  from Government of the issues for smaller providers and advisers in planning for the needs of the many. The RDR has meant it financially impossible for most advisers to make money out of the mass market and the cost of auto-enrolment is making it hard for small advisers to concentrate on advising on workplace pensions.

What is the answer?

Diversity among workplace pensions must be marketed to allow smaller firms to compete with NEST. This means spending real money and not messing around with a skewed directory on the Pension Regulator’s website

There is a capacity issue looming in 2015 and looming larger in the following years. I do not have an answer to that issue but I am interested in the example of Power.  I would like to see Government encouraging smaller providers to stay as workplace pensions by helping those who commit to the new quality standards,  compete against NEST.

This will mean keeping NEST the “insurer of last resort” and not promoting it beyond all others, it will mean promoting diversity in the workplace which may mean giving a leg up to the smaller firms.

VAT on pension advice must be scrapped

Similarly , it is time for Government to seriously re-consider how advice is paid for. I am not talking about returning to commission but of encouraging advisers who are prepared to sell advice as a free-standing product, not to be penalised by an unfair system of VAT payments.

Charging VAT on advice to private individuals, where the advice is not associated with an insurance product makes advice 20% more expensive. Small wonder that many advisers are integrating their advice into products where this cost is hidden or not levied (the product being insurance based.

This goes to for advice on workplace pensions. Smaller and micro employers who do not collect VAT, should not be hit for VAT on the cost of choosing and implementing a workplace pension,

We have called for this for two years and as the auto-enrolment and Guidance capacity crunch looms we call for it again. Press the link above to see the full argument.

pension capacity

Today I will be at the Treasury talking with them about capacity among advisers to deliver. You can be sure I will be making just these points.

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Banahan, Burgess and a Bath night out!

burgess and banahan


Most of this winter has been spent watching Yeovil Town lose, with the prospect of a home cup tie against Man Utd looming, I’ll be traipsing down to the Huish on Tuesday night to will them to a rare home win.

But you lose your shirt following Yeovil!

Topless yeovil

I’ve almost forgotten what it’s like to go to a game expecting my team to win, so my cheap evening return to Bath carried an anticipation of success that must attend the likes of Bristol City,

I had a year or two in Jersey a few years ago, about the time when Mat Banahan was coming to the fore. I was keen to see how he looked as a grown up – answer- big strong and intelligent. But the man that 12.000 West Country lads and lasses had really come to see was Rugby League Sam Burgess.


Sam is clearly the life and soul of any team and there’s no doubt he’s as much a hit in the changing room as he is in the press. But the boy is not a centre!

This was a really great night of rugby, last week Bath had cruised to a facile win over a (relatively) poor Montpelier but they failed to get the bonus point for a fourth try, despite scoring three in fifty minutes. After 55 minutes, Bath had scored three tries thanks to Banahan, but it wasn’t till the 78th that they got the bonus point that kept them in the European chase.


It was a case of a one-side game and a one-sided score that could have been all over after 15 minutes but which remained a thriller to the final moments.

I’m really grateful to my friend Jamie Biggs and all the lads from Fidelius for inviting me down. We may have had a box, but everyone was outside on a cold December night and we made it back in the early morning knowing we’d watched one of those great rugby nights!

Back in the 70s I played a few games for Bath Colts and spent a lot of time at the  Rec. It was amateur then and today I’d have been found out a lot earlier than I did (if I was a horse they’d have been kind and said I didn’t train on).

But whether for North Dorset, Bath or Bryanston, west country sport provided me with a chance to participate in something quite different from the plastic affairs served up at the Stoop, Twickenham and the various football grounds which are home to Sale, Saracens and London Irish.

You can only do this properly with a pasty , a pint and some mates and I’ll be hounding the Fidelius boys for any spares for the rest of the season!


Come on Yeo and beat those Accies!




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The alchemy fallacy – Guest blog from Ralph Frank


The 2014 Edelman Trust Barometer found that financial services is the least trusted major industry, with a score of 48% globally (technology is the highest at 79%). Trust in UK financial services is even lower than the global average, coming in at 37%. A reason often cited for the lack of trust in financial services is that results delivered frequently fall short of the expectation created pre-purchase. Three of the main drivers behind this over-promise/under-deliver cycle are: incomplete disclosure of costs, ineffective risk management and creation of unrealistic expectations.

The issue of disclosure of costs is one that is gaining increasing attention – and not before time, as discussed in previous blogs. Full disclosure of costs allows consumers to make better informed purchase decisions. Incomplete disclosure distorts the value assessment process, increasing the likelihood of inappropriate decisions being taken. If savers are aware of a high level of fees being embedded in a particular product, they will be able to better consider whether the gross of fees return required to achieve the advertised net of fees outcome is realistic or not. Addressing the issue of full and consistent disclosure of costs across different markets is a key part of building trust in financial services.

A robust risk management process, built on top of a clear understanding of what the underlying risks are, will increase the likelihood of financial products delivering the outcome anticipated. History is littered with examples of products based on financial assets with characteristics quite different from the objectives the products were meant to deliver on – equities and guaranteed annuity rates as well as equities and mortgages are two that spring to mind. Attempts at return maximisation, even over the long-term (whatever that might be), have often resulted in trust minimisation.

Many financial products are sold by creating an expectation in the purchaser’s mind of the return that might be earned. However, these return expectations frequently require modern-day alchemy in order to be realised. It would be quite easy to avoid the subsequent disappointment by not indulging in some of the fallacious explanations of how such returns might be achieved in ideal situations – particularly when the fine-print in the accompanying documentation sets out a mind-numbing range of caveats as to why the ideal situation might not come to pass.

Many estimates that savers receive from their providers as to the likely growth of their savings currently assume a central case rate of return of 5% per annum. Is 5% per annum realistic in a world where short-term interest rates are effectively zero, ten year UK Government bond yields are less than 2% per annum and thirty year UK Government bond yields are less than 3% per annum? These Government bond yields represent, in my opinion, the risk-free rate for a UK saver. ‘Risk-free’ means that there is certainty, as far as possible, that the provider of capital will receive a full return of their capital and interest. If you seek to earn a higher rate than the risk-free rate, you have to take investment risk and likely incur a management charge too. A central case that assumes a return of over 2% per annum, net of fees, above the risk-free rate feels like a recipe for under-delivery in many cases to me.

What do the financial services industry and its clients stand to lose in the long-term by seeking to break the cycle of over-promising and under-delivering? The initial messages given to savers might cause them to be unpleasantly surprised by the quantum of saving, both timeframe and contributions, they need to undertake in order to achieve their goals. Those dissuaded from investing, by the low return projections based on the risk-free asset, will likely have been better served by not setting themselves up for the near-certain disappointment that unrealistically high return expectations might create. Others might benefit from paring back their goals to more realistic levels.

The sooner a problem is identified, the more likely it is to be successfully dealt with. If the resulting savings programmes and related products deliver more than was initially anticipated, contributions and/or timelines can be cut back as a reward for the early discipline. These outcomes are likely to build confidence in the financial services industry, attracting more support in the long-term. The likelihood of persistent alchemic success in financial services is of a similar order to that in chemistry – why pretend otherwise?

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What’s missing from the FCA’s “retirement income” market study..


In a rather sensationalist blog, I gave my view today on the untimely burial of annuities.

Let’s hope they rest in peace, in the meantime the FCA has discovered a brave new world of Pension Dashboards, non-advised drawdown and even (put in a footnote) collective pensions.

We saw these monsters coming over the hill in its earlier guidance consultation, but the 100 page market study on retirement income that sipped into our mailboxes yesterday morning is the clearest statement yet that the FCA have moved on from a world where financial advice was a mass market solution.

The paper is very clear that there is going to be considerable change from April 2015


The change is not just about the products but about how we access them…

For income drawdown, the barriers would appear to be less material,  (with)  new drawdown products expected to be directed at mass-market customers on a predominantly execution only (or guidance and information) basis through firms’ direct to consumer distribution channels.


Previously income drawdown was the most regulated of products. The Regulator and the advisor shared a view that advice was essential to the use of drawdown. It would now seem that drawdown will succeed because “new drawdown” will be non-advise- execution only – and sold directly to the consumer.

To understand the logic behind this change of position, you need to read all 100 pages. This is my attempt to interpret where regulation is going and to second guess the solution that will emerge from a market in turmoil.

Let’s start with where we’ve come from….the FCAs numbers make for salutory reading

In 2013, 353,000 annuities were sold, two thirds of which were standard annuities. This compares to 22,000 new income drawdown contracts over the same period.

The annuity has been the mass market decumulation solution .

The average(mean) annuity in 2013 was purchased with a pension pot of £33,670. The median value was less than £20,000, meaning that half of all annuity purchases in 2013 were made with pots of less than £20,000.

The natural  annuity replacement for more than half of the market doesn’t look like drawdown, it looks like cash. Even the most optimistic product developer is going to work hard to run a drawdown service for less than £20k.

The average pension pot used for income drawdown purchases in 2013 was almost 2.5 times larger than for annuities, at £80,700.

This statistic really surprises me. It suggests that my earlier work that suggested that the cost of a fully advised drawdown service for an £80k pot is getting typically 3%  of the pot  pa. is true for the average drawdown.  22,000 of these little babies is a market getting on for £2bn, 3% of that is a lot of money.

It would seem that the consumer is waking up from a deep sleep

Our qualitative research indicates that the changes announced in the Budget have raised consumers’ awareness of their ability to take pension income ‘as and when they need it’,suggesting that purchasing decisions are much less likely to be the one-off events that they have historically been.

And the FCA sees the current state of affairs as a near monopoly for advised sales

In contrast to annuities, the majority of income drawdown plans are sold externally, with approximately one-third of sales made with the existing pension provider. To date, income drawdown plans have almost entirely been sold to consumers with advice. In 2013, 97.4% of new income drawdown plan s were sold through independent or restricted advice services.

This is the context for the changes the FCA foresees

We expect the distribution arrangements for drawdown to evolve significantly in the new landscape with the development of more direct to consumer business models with a significant digital/online element.

There may be an app for pensions but…

Given the complexity and choice  of products we anticipate being developed, consumers are likely to find comparison of products more difficult and will need adequate and appropriate support through the retirement journey.

Such support is not envisaged as particularly personal. The FCA is looking at making products easier to understand.

Complex or opaque charging structures would also make comparisons harder and weaken competitive pressure on value.

Sadly, the appetite for decision making still seems to be minimal. In a frightening result (especially for TPAS,CAB and MAS)

69% of the consumers sampled expect the pensions guidance service to provide either a specific recommendation based on personal circumstances, or a tailored list of options  based on the individual’s circumstances.

This is indicative of a demand for services above and beyond that which the pensions guidance will provide.

There is something wrong here. 69% of the 1200 people the FCA surveyed still wanted to be told what to do. Personal empowerment is still a minority sport!

People looking at their retirement options are going to return to work sadly disappointed. They are going to ask for further help from their employer and/or their pension trustees.

The FCA talk of “adequate and appropriate support through the retirement journey” but the only international model that it can call on is Denmark and Holland

The (international) research has identified examples of initiatives to improve consumer financial literacy and access to information.

In Denmark, advice and information websites run by the Government and by pension companies provide simple and comprehensive material on pensions, and offer advice on how best to manage pension funds. Their success is reflected in a high customer satisfaction rate with the information available to them (around 70%) and financial literacy rates.

Similarly, the pensions ‘dashboard’ in the Netherlands, developed and run by the pension federation, together with the Dutch funds and the social security bank (SVB), informs every individual about all pension entitlements they have built up with different pension funds over their lifetime (including their state pension entitlement).

This has encouraged consumer engagement with pensions by making them more tangible and visible. Some indication of the success of the dashboard is provided by self-reported measures of financial awareness.

The study leaves it there but there is an important omission in its research. The FCA ignore the role of the employer in the delivery of this information. In the UK, as in the Netherlands , Denmark and most other OECD economies, it is in the workplace that most pension savings are made and from which most people launch their retirement income.

While employers are showing no appetite for running “in-retirement income schemes” for former staff, they are showing considerable interest in finding a way to help staff exit employment when it is right for them to do this. The definition of “right” may be different for employer and employee, but we can be sure that no employer is going to stand in the way of better outcomes for staff who are ready to pack it in – or at least wind down.

The only reference to the employer I could spot in the document was as a sponsor of CDC schemes.  Employers may have no appetite to run CDC schemes themselves, but they have the in-retirement characteristics that recent IPPR research suggests people want (and employers used to provide through DB.

For the first time, I see specific reference within a Government paper to the CDC product as a means to spend (rather than accumulate) savings

Particular, (the Government) has looked at how CDC schemes might work in the UK. The Government’s proposed model for this would have a .. target pension income for employees (with provision for this to be adjusted if the scheme is under-funded); and pooling of scheme assets (rather than individual funds for each member), with an income paid from this pool at retirement.


The FCA’s market study is labelled an interim report. As such it is hardly surprising that it poses as many questions as it answers.

There may be political reasons why the FCA does not feel it can talk about delivering workplace support and information for those considering their retirement income options. This is of course the turf of the Pension Regulator.

However it is hard to avoid the employer as the key to much of the pre-planning of decision making and while an employer cannot deliver the ongoing support that is clearly needed, it has a great role to play in supporting the guidance process, which is clearly not going to meet everyone’s expectations!

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