Aren’t pensions worth a mention in this election?




Why has there been so little comment this election campaign on pensions?

When the rabbit came out of the hat in #Budget2014, many thought the freedom of pensions was the Conservatives great “retail offer”. Has Steve Webb diluted its political impact or are the Conservatives getting cold feet?

Auto-enrolment was one of the few unequivocal public policy success stories of the past parliament. Opt-out rates have stayed low, compliance to the complicated regulations has been high and confidence in retirement savings has been increased with the numbers saving privately increasing from 30 to 49%. Why is neither Clegg nor Cameron pointing to this?

The basic state pension has been reviewed, overhauled and simplified so that next year we will have a benefits, which while not more generous, is at least comprehensible. The application of the triple lock over the term of this parliament has increased the value of the basic state pension in real terms – IN A TIME OF AUSTERITY. With the Conservatives being portrayed as the party of welfare cuts- why is more not being made of the improvements in the Basic State Pension?

There are a raft of DC reforms , most importantly around the abuses of DC pensions (commission, consultancy charging, AMDs and the lack of governance of contract based plans. All of these are consumer focussed and, other than they have reduced intermediation, well received. Consumers are getting a better deal out of the workplace pensions into which 4.5m new savers have been enrolled.

Finally, the process has been put in place for a new kind of collective pension to develop. The development is early stage as auto-enrolment was early stage in 2010. I remember many sceptics in 2010 talk about auto-enrolment in the same way as they talk about CDC today.

Those who complain about CDC also complain about giving people pension freedoms. This is totally illogical. If people cannot manage the freedom of drawdown but reject the captivity of rigid benefits (especially annuities), what do these people want but a third way?



Why is pension a non issue?

While I don’t suppose that pensions policy is touching buttons like the NHS or the fiscal deficit. it is an area of policy about which we have seen genuine changes in the past five years which demonstrate how two parties can work together to take forward policies initiated in a third party (Labour) Government. In truth none of the policies listed above has been opposed by Labour in a meaningful way.

The Shadow Pension Minister, Gregg McClymont has persevered in urging the Coalition to accelerate these policies, release NEST from its restrictions, cap the cost of pension spending and impose more stringent prescription on the charges within workplace pension savings plans.

They support CDC, improvement in the state pension and auto-enrolment (which after all was their idea).

UKIP and the SNP, the new forces in British politics have decided to leave “pensions”out of their manifestos , other than the SNP aiming to protect the state pension age at current levels (which is fair enough looking at Scottish longevity relative to that down south).

Worth mentioning pensions.

In the debates I listen to, I hear a lot of arguing and a lot of moaning from audiences about the amount of arguing.

Politicians seem to be in a vortex of self-defeating recrimination. They point to stark choices with the risks associated of taking the wrong choice being severe.

But in pensions there are no choices to be made, there is harmony, there is success.

It is worth pointing out that where the focus of the politicians is on delivering public good, consensus tends to follow. The coalition has been good for pensions and Gregg McClymont has been a party to the success.

It is very sad that Gregg looks unlikely to be able to participate (immediately) in the new Government. This is an accident of time and no reflection on Gregg or his team. If by a miracle he wins Cumbernauld, he will undoubtedly be the next pension minister and likely to be a very good one.

To those who say that politicians are all the same and that nothing good comes out of Westminster, it’s worth mentioning pensions.


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Care or hubris? – How Tesco got in such a pensions mess.

every lidl helps

Every little helps?

The right old mess that Tesco has found itself in , is blamed partially on its mishandling of its pension strategy. How can an organisation with the motto “every little counts” have such a large pension deficit? Come to think of it, what is it doing offering to insure the longevity of an itinerant and anonymous workforce?

By “itinerant and anonymous” I mean workers whose jobs are rarely central to their lives. There are of course a hardcore of Tesco professionals, but those who work on the retail floor are as disposable as the superstores which yesterday’s announcement saw consigned to the bin.

The hallowed halls of the NAPF are portraited by the pension directors of the supermarkets, not just its current chair Ruston Smith (Tescos) but such luminaries as “one f Jef the ref” Pearson (Sainsburys) and  John Ralfe of Boots. Supermarkets have long been suckers for providing pension guarantees and bragging about it.

Those that have stayed clear of insuring their staff’s longevity – Lidl, Aldi and by and large Asda, are the current winners in the supermarket price-wars that have cruched Tesco over the past three years. Walmart’s intercession put a brake on Asda and the wily WM Morrison put a break on Safeway.

While Morrisons got the kudos for introducing a defined benefit scheme for staff in 2012, in practice it was only guaranteeing a lump sum (not a lifetime income) – a smart choice with pension freedoms on the other side of the hill. Morrisons also got the marketing of its scheme right by investing in financial education on the shopfloor.

A victim of its own spin

Of course the corporate argument for these DB schemes  has been spun around the corporate and social responsibility of our supermarket giants. Last century’s philanthropists like Jesse Boot and the Cohens (the co in Tesco) leave their mark in the name but there is a massive gap between practice and reality.

Terry Leahy may have been one of Tony Blair and Gordon Brown’s kitchen cabinet but the harsh reality of supermarket economics comes down to reducing the staff costs to customer footfall ratios, grinding suppliers into suicidal deals and bringing Britain’s transport system to its knees getting stuff around the county.

Then there are those “Finest*” multi-buys.


There are few who look to Tesco as an exemplum of progress. That is why we are all secretly smug at its £6bn write down.

The dead hand of corporatism

Wherever corporate complacency sets in, lazy decisions come home to roost. It is the constant disruption of the status quo that makes organisations like Google hum. I’m humming with content that this blog has just won a thumbs up from google for its mobility (thanks word press) but pissed that I’m going to have to redesign many of the frames of which are not mobile friendly enough.

Listening to google, I am listening to their customers, my customers of the future. I cannot stand in the way of change, I must bow to it and use it to make my business better. This is what Tesco have failed to do. That the pain isn’t being fealt even more by the shareholders is because the washing is being aired (albeit belatedly).

An Atrophied trade body

Smith-Ruston-Approved-2013-Thumbnail for for press page2

Chair – Ruston Smith of Tescos

CEO - Joanne Segars NAPF

CEO – Joanne Segars NAPF

When Joanne Segars of the NAPF began a recent talk “with auto-enrolment almost over..” the coin dropped. The pensions industry is about the past, it’s about Terry Leahy  and the vision of corporate Britain that prevailed in the 1990s. It has nothing to do with Google or Facebook or even little old Pension PlayPen.

But Tesco started out as a shop in East London, the employers still to stage auto-enrolment include the Googles and Facebooks of the 2020s.

The decision of Tesco to enroll its non-engaged workforce into a defined benefit plan when it staged auto-enrolment in 2012 now looks a monumental act of hubris, one that only three years on is having to be unwound.

The message is clear, the world has changed. We need change in pensions and that doesn’t mean relying on personal pensions to sort out the mess. Personal Pensions have not changed since they were introduced in 1987, they are themselves nearly 30 years old. They do not share pension risks any more than Tesco’s DB plan shares pension risk.

They are simply a receptacle into which employers can discard the risk they used to own, like rusty supermarket shelves are dumped into a skip.

Not just about today- it’s about tomorrow

We shouldn’t wring our hands and look backwards, we shouldn’t accept what we have today is right, we should be looking forward to the future, as Tesco’s successful competitors are doing finding new ways to satisfy customer needs.

We need to care about our customers, and in pension management that means about meeting the needs of our staff. We know what people want, all the surveys say the same thing, people want a regular income in retirement (and not the Lamborghini). Now let’s find a way to provide that, using the collective power of hundreds of thousands of workers, without mortgaging our equity with guarantees.

target pensions

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How pensions restrain public sector pay and services.


The latest discussions about how we will manage the nation’s finances are focussing on public sector pay.Nick Clegg tells us that his party will make sure

  wages would rise in real terms for two years from 2016, and then above inflation once the deficit has been dealt with

What is not being said is that real rises in pay trigger rises in pensions as pensions are linked to pay by a tax-payer guarantee.

So of course are the pension contributions that private sector employers make, but these bosses are only obliged to pay a commensurate increase in contributions. The impact of an above average pay rise to a public sector worker will still be felt in up to 50 years time.

Because public sector organisations like the Civil Service, the Fire and Police Services , Local Government, our teachers and NHS staff so not have balance sheets open to scrutiny like public companies. the cost of these pensions can be hidden. But there are calls for this debt to be part of the political debate, most notably from Nigel Wilson, CEO of Legal & General who estimates that we owe our pubic sector pensions £1,300,000,000,000 in future pension contributions (that I hope is £1.3tr!).

Nigel argues that by parking this debt off the National balance sheet, we are fooling ourselves (and in the short-term the markets) of our indebtedness.

Michael Johnson has cogently argued against what he calls a “pension apartheid” with one set of rules for the public and one for the private sector.

I’d argue that we need to base arguments in common sense. As Jonathan Guthrie pithily puts it in the FT

The Treasury airily excludes pensions for public servants from net debt on the basis that they are “contingent” liabilities. This is a half-truth: the notional cost will bounce up and down with discount rates, but beneficiaries are unlikely to waive their entitlements when they retire.

I guess that’s like shoving the tax-bill under the carpet.

I don’t want to do public servants out of pay rises but I’m reluctant to have a debate about their pay, without having a debate about the pensions liabilities that pay rises trigger. Which is me saying at an individual level, what Nigel Wilson is saying at a national level.

The reluctance of politicians to discuss the total pay of public servants (that is salary +pension) is understandable. We have fudged this issue to death over the past twenty years and there are no votes in fudge.

Earlier in the year, I wrote a couple of articles about the state of Dorset’s roads, in particular the closure of a link road between Shaftesbury and Blandford. The closure is a result of a failure to build the by-pass promised to the villagers of Melbury Abbess for the past twenty years. Put simply, there is no money in the County coffers, that money has gone into funding Dorset County Council’s pension liabilities.

Putting aside any arguments about how that scheme is run, the fact is that things are bad in and around Melbury, old people have trouble getting out of the village, local lanes are congested and there is no end in sight.

Dorset may not have a visible balance sheet as Centrica or Unilever, but it is just as constrained by pensions. I choose Centrica and Unilever because they are two (of many) private sector organisations that have managed their pensions – with the consent of their staff – so that they are able to make the investments they need to keep people in good jobs.

We need to de-link public sector pay from the ruinously expensive pension liabilities that they trigger. This cannot be achieved without the consent of public servants themselves. With the help of excellent unions such as Unite and Unison, we can and should have a proper conversation about pensions. The consequences of pensions on current pay levels need to make clear, far from pensions creating freedom, they are holding the public sector back and creating deep societal problems

A blog is not the place for that conversation. It’s saddening to me (and Nigel Wilson) that we are not brave enough to include this conversation in the debate we are having on who runs the country and how.

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Labour in a kilt? – Pensions, politics and plagiarism

labour in a kilt

The SNP’s manifesto is a pretty shameless cut and paste of labour party policy.

If your hit single was covered by your biggest rival and it was they that got the royalties when it went to #1, you’d be pretty sick. If you lost your job as a result, you’d be sicker still.

So my heart goes out to my buddy Gregg McClymont whose policies on greater transparency in pensions are now being touted by the SNP as if they had a clue about what they are talking about.

The Tory party are now bigging up the SNP as Milliband’s puppeteers while pre-populating the House of Lords with a putative peer to lend their department of pensions irresponsibility some semblance of credibility. This is pretty flakey stuff.

Fortunately the Liberals are doing quite well , their support is now in double digit percentages, enough to get them back over 30 seats. Coral have cut the odds of them being part of a coalition from 2-1 to 5-4 making them the favourite to be in power (oddly more likely than either Tories or Labour, for whom opposition of Government are binary positions). Riding two horses in the same race is something that Clegg and Co are pretty good at!

Which is some consolation for those looking for a sensible pension policy going forward. If we have to assume a Gregg-less Labour Party and a clueless Tory party (at least on pensions), my guess is that we are on course for five more years of the sardonic Mr Webb.

In this new world order, the Liberals become a party of free-thinking, a moderator of ideological positions and a confounder of nonsensical policies. Which is precisely why I am a Liberal.

In such an evenly run race – with neither Labour or Conservative looking to have a finishing sprint in them, a dead heat looks a likely outcome. In such a scenario, there are only two kingmakers- they are the SNP and the Liberals.

UKIP is still the party of second place and will have little representation in the Commons, the Greens and Plaed Cymru  will carry some collective weight for the SNP, the DUP look aligned to a Tory/Liberal coalition.

In this two horse race, it is the horse stable in #10 that is conventionally the likely winner. It is the incumbent governing party and Prime Minister which is offered first dibs at forming a new Government so this favours Cameron- should the Tories not get an overall majority.

The bookies have no overall majority at 1/8 (that’s 8-1 odds on!) with a Labour overall majority available at 22-1 and a Tory majority at 15/2.

Any sensible person must anticipate a coalition, I suspect that the only thing keeping the odds on a majority Government as low as they are is the conviction of the party faithfulls.

So this two horse race is really about the riders and trainers. As Cameron likes to point out, the Labour Donkey will be ridden by Milliband but trained by Nicola Sturgeon. But the Tory Donkey may be ridden by Cameron but trained by Nick Clegg!

In horse racing, it is quite common for riders to be “jocked off” if they can’t get their nags past the finishing post in front. This however looks unlikely at this election . The bookies have Milliband the slight favourite to be prime minister from Cameron but it’s 20-1 against these two being elected.

Milliband’s favouritism must be based on the momentum gathering behind Sturgeon and her vision for an austerity-free Britain (something that Labour have failed to visualise).

With the SNP now as low as 6-1 to win all 59 seats in Scotland, Labour in a kilt has (unexpectedly) become a political possibility. My gut says that in such a scenario, what would be best for Britain would be an arrangement that brought the Liberals into a tri-partite pact.

Group hug

If you are interested in this idle speculation, check out the excellent odds-checker which gives all these perms and a whole lot more.

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Scrap the LifeTime Allowance – for hard working people!


The Conservatives say they want to reward hard working people. I’d like to thing they include me in that number.

They want to appoint Ros Altmann to help us educate ourselves in finances, I’d like to think I’ve been educating myself.

Since I started working, I’ve been squirrelling money from my pay into personal and company pensions month after month for nearly 400 months, that’s nearly 35 years. The result is that I have built up a big fat pot (I brought my pots together in 2013).

I haven’t sunk all my money into bricks and mortar, I didn’t buy to let, I invest my savings in the global economy and I intend to keep invested for years to come.

I intend to keep on working after my 55th year for decades to come and to continue saving as I have always done. I want to provide myself and my family with the security of knowing I am financially sufficient and will not be a burden on them whatever happens to my health, no matter how long I live.



I have a financial plan and it involves me using financial products that afford me tax privileges. I earn well above average earnings and I pay a lot of tax, where there is a taxation promise I expect it to be kept. If I cheated on my taxes I would expect to be punished.

I don’t earn £150k but I don’t have a grudge against those who do. The irony is that despite the spoof headline below, Cameron and Osborne are screwing up the pensions not just of people like me, but the super-achievers who they most fawn to.




So far so good. But let’s look at what is happening to my plans. My pot – according to George Osborne runneth over. He started at £1.8m, reduced this to £1.25m and now is telling me I cannot save beyond £1m.  He implies I am a fat cat, but that £1m will buy me a not so big fat annuity of around £27,000 pa  if I want to exercise my freedom to purchase at 55.

That is not what I call rewarding a hard working bloke for working for 35 years, nor is the prospect of having to walk away from pension savings around now (I am 53) what I had planned on doing. Nor is it what we educate people to do at First Actuarial.

I don’t agree with John Ralfe on much, but I do agree that his dictum

“work longer, save harder, save longer”

is fair and honest and credible to the average hard working person.

Two out of three of those instructions are denied to me, or at least I am denied the right to save longer and harder into a pension,

People are instinctively drawn to income (and I am no different). I dread the idea of cashing in my pot, paying 45% tax on a big slug and then sitting on a big bank balance, paying 0.1% interest on which I am taxed again. That is not why I put money into a pension all these years.

Hard working people

I want my £1m++++ to buy me an income, I’m not too fussed that it is guaranteed, I’ll take some chances, but I want to know what the income is targeted as doing to my financial well-being. That is me being responsible to myself and my loved ones and it has been part of my financial planning for the past 30+ years.

I really resent David Cameron and George Osborne pretending they have released pensions from some kind of bondage and that in appointing Ros and funding Pension Wise, hard working people like me should be grateful.

No way!

I am extremely ungrateful for the triple cut in my lifetime allowance. I see no reason why high earners should have their means to catch up on pension planning curtailed to pay for an inheritance tax cut for those with housing wealth.

As a financial adviser (15 years ) and a financial educator (15+ years) I have taught the virtue of saving 10% + of income over a working lifetime to secure financial security in retirement. I have reminded people that you cannot buy a sausage with a brick from your house and warned against the dangers of relying on bricks and mortar to fund old age.]

Every single one of these messages is being undermined by this Tory Government and their miserable and impoverishing 2015 manifesto. Wheeling Ros out to legitimise their personal finance agenda is personally offensive. Ros has gone on record stating that the LTA should be scrapped, so has that other great campaigner Steve Webb.

hardworking 5

We need to restore confidence in pensions and every time politicians tweak the dial on the retrospective tax treatment of our savings, another tranche of savers walk away muttering the words “I told you so”.

Here are  five unexpected consequences of the changes on Lifetime and Annual allowances being proposed by the department of Pension Irresponsibility (and the Conservative Party).

  1. The messaging of the past thirty years is trashed, people will now be told to undo what they were doing – the credibility of the prudent advice (and advisers) is shot.
  2. Many people will unwittingly pay 55% tax on a proportion of their savings, many due to auto-enrolment which they will not know to opt-out of.
  3. Employers and trustees wishing to help employees manage their finances will have to revise communications, withdraw previous instructions and will see their programs devalued.
  4. The hideous complexities of mixed pension benefits, especially money purchase schemes with guarantees will now need to be explained and valued at enormous expense. One scheme I deal with has 14,000 members in a scheme with a GMP underpin that is biting.
  5. While large employers re-enroll, small employers enroll, we grapple with the complexities of DB to DC transfers, people try to work out what pension freedoms mean….. the tinkering on these taxes makes everything worse.

hardworking people7


Andrew Neal is a man of good sense. He is an expert political commentator and a man who understands personal finances. He told me and those around me that he would not recommend to his friends and families that they saved for their retirement in a pension because pensions were too vulnerable to political interference. He said this after the 2015 budget and I suspect he would say it louder since the fiddling with the annual allowance announced this week.

I am not for the establishment of an independent pensions comission, we had one before under Hutton and it was toothless and bureaucratic and it slowed things down.

I am pro a consumer champion and pro Ros Altmann- though I hate the political nature of her appointment.

But most of all I am pro-democracy and the voice of the people. So if you have read this article and agreed with me, I’d like you to do something, I’d like you to send an email to with the title

Ros – for the sake of hardworking people – tell David and George to scrap the LifeTime Allowance.


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“Astonishing” – “yes you are”!

Group hug
Nigel Farage; “astonishing!”

Nicola Sturgeon; “yes you are!”

Last night’s debate provided the best quip of the election so far and it came from Nicola Sturgeon who out Faraged Farage for incredulity.

This of course was Cameron’s reason for not showing up, he wanted to see his opponents wipe out in a demolition derby,

Certainly, the clips we’ll be seeing over the next couple of days are gong to be Farage v Sturgeon, Farage v BBC, Farage v audience which is exactly what we don;t need.

An isolated Farage with the right wing agenda to himself is a frightening prospect. Many of my close friends, including my partner and members of my close family do not think that Farage’s views on immigration , the International Health Service and the EU are extreme, bigoted or wrong.

Infact, the UKIP manifesto as I read it had some really interesting things to say on pensions, being realistic about funding Pension Wise, proposing a flex on state pensions and making pension cold calling an illegal activity.

Farage has a point of view, not my point of view, but a valid point of view.

The sight of four of the five contestants shaking hands at the end of the debate – but isolating Farage, did not play well with me and if that’s the way the left deals with his concerns, Farage will be quite happy. There are plenty of those on the left who can sign up to parts  of UKIP’s value set.

all in it together


If I’m unhappy about isolating UKIP, I’m pleased to see a strong left wing alliance developing between Labour , the Scottish Nationalists and Plaed Cymru. Unlike the last election , there is credibility behind the economic arguments to regenerate the country through investment.

We have a proper choice between Milliband’s labour, spurred in its intent by the cold wind from the north and the prevailing consensus of the past five years. It should be noted that much of the austerity that we have been promised has yet to arrive, the cake was baked some years ago but it reaches our tables in the next two years.

I don’t want these cuts, not because they are going  to hurt me, but because they target vulnerable people and because I don’t think that economic targets should be prioritised to the degree that the Conservatives want them to be.

I’m also deeply unhappy about the department of pension irresponsibility ripping up much of the good work we’ve achieved on pensions in the past ten years in the pursuance of a policy of mass debt (sorry property ownership).


I hope I’m both radical and consensual- in the true senses of both word. I don’t want to see polarisation of politics with UKIP isolated on the right. I want to see Farage’s views listened to as I want Sturgeon’s and those of the Welsh and Green lobbies.

Whether Liberals work with Labour or with Conservatives, I am comfortable. The polls currently have a combination of these two options co favourites with an SNP supported Labour minority.

As a pension person, I would rather see a coalition that involded Steve Webb and the Liberals than one dominated by politicians who know little about the subject. By an unlucky stroke, all the pension savvy Labour politicians loo

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Advance Australia Fair!

aussie flag

I have never been to Australia, I should go I know, but we have Earl’s Court.

My good friend Jim Hennington has recently returned to his native Oz after a few years over here teaching us some tricks on how to keep complex ideas simple. If Jim has his way, life would be as easy and simple as a Mac, he’d make it so.

We keep in touch on Linked In and we got into a conversation this week about the Australian pension system known as Super (Superannuation if you’re a British actuary).

It started out with him sending me this article a precis of which could be

“Australians know Jack Shit about what they’re doing, but they’re happy and proud of what they’re doing and why they’re doing it”.

I responded as any self respecting Pom would by explaining to Jim that his nation was populated by ignorant convicts who did whatever their Government told them to so that they could spend too  much time lying on the beach with a few tinnies dreaming of winning a test series in the UK.

Jim did not rise to the bait but sent me instead this extraordinary message.

 Without a clear objective there can be a LOT of wheel spinning.

Australia has a Financial System Inquiry going on at present. The first recommended action in relation to “superannuation and retirement incomes”

Set clear objectives for the superannuation system.

A clear statement of the system’s objectives is necessary to target policy settings better and make them more stable.

Clearly articulated objectives that have broad community support would help to align policy settings, industry initiatives and community expectations.

Jim then refers me to a the source publications; here . He finishes

I remember in the UK struggling to find a clear definition of ‘adequate retirement income’ when looking through all the various UK consultation type papers.

The man is absolutely right. We love the trees , we forget about the wood.

Last night I chaired a meeting of the Institute and Faculty of Actuaries in London. The audience were nervous for most of it as we discussed issues impacting the lives of those who don’t know algebra from an algorithm. The meeting caught fire as we moved to a discussion of hybrid money purchase arrangements complete with GMP reconciliation and the assumptions used in TVAS calculations.

I know actuaries are special needs , but their plight seems to have infected my thinking too. I was ashamed reading Jim’s mail that I had not and maybe cannot articulate what good looks like – as in a “good standard of living when I get older” or a “good way of paying for it” or even a “good thing to do”.

Of course a value judgement like “good” relies on a consensus, which is created by precisely the process that Jim is talking about. As these sheep-friendly cons gather round the barbie and congratulate themselves on their retirement wealth, we wonder whether we can live with the freedoms we now have.

Judging by last night, we would happily adopt the recommendation of Jack McVitie and LEBC and make all financial decisions taken on decumulation monies subject to a 30 day cooling off period. That would be a third line of defence behind Pension Wise and the insurance company grilling to which those wishing to be free are compelled to undergo.

Australia is a confident nation , proud to be young and proud to be free of us. It has clear objectives for what it is doing which people understand. Australians may not understand Jack Shit about their Super but I don’t understand Jack Shit about this computer I’m typing on (except it works).

So the Pension Plowman Election Manifesto now calls for a clear definition of “adequate retirement income” to which we all can sign up to. We need a clear financial goal that says what the unfunded bit (state pension) and the funded bit (pension savings) should add up to.

If we get that far and everyone knows what the minimum height of the bar is, then we can build to set our own private targets.

I guess right now we may still need a few state top-ups to get to that minimum bar , but things are changing, auto-enrolment is changing things and people’s own engagement in their financial futures can change things still more.

I don’t think we need a compulsory system as they have in Australia, but I do think we need the clarity and simplicity of their approach and we need that clear statement that Jim was after when he was over here.

Australia continues to rise- damn it! Australia is irrepressible! The likes of Jim Hennington, David Harris,Vivi Friedgut, John Tsalos and Jo Cumbo are some of the very best people in the whole world.

I am not Australian, I am British – I am different- and bloody proud of it.

But being British doesn’t mean I cannot learn.

If you’d like to find out how Australians are going about offering financial guidance to its population, have a look at this page  of Jim’s website and watch the video on the right hand side. I think the boy’s onto something!

So’s she for that matter..


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Probably the worst flagship tax ever?


George Osborne says his proposed tax break for high value homes is about “values”, it is no such thing. This policy is about votes.

What is going on with the conservatives on tax? They have become obsessed with the “retail offer”, the giveaway that captures the public imagination and sweeps them into power (without interference from troublesome liberals).

This election’s big idea is being touted as an increase in the inheritance tax threshold to take all but the biggest houses out of HMRC’s inheritance tax net. This of course a return to “wealth cascading down through the generations” and is designed to appeal in a big society way.

But it’s all a bit of a con and it’s going to do a lot of harm to pensions without doing much good for anyone. As Robert Peston asks, “Who wins from Inheritance Tax Giveaway?”.

Of course this policy is brought you from the Department of Pension Irresponsibility (Tory Treasury “thinkers”). It will be paid for by reducing the amount that high earners can pay into pensions and its impact will be to further alienate those who manage our businesses from the works pensions on which everyone else will rely – pension apartheid.

The absurd reality (which will go down like a lead balloon when explained on the shop-floor) is that someone on £40,000 can contribute £40,000 to their pension , but were they able to earn £210,000, the contribution limit would fall to £10,000. It’s totally nuts and the fiscal thinking of people totally detached from day to day budgeting.

You might argue that with the pot being capped at £1m, this is inconsequential but try telling that to those “hard working executives” who are trying to catch up on pensions.

Try telling that to those people who are still in final salary schemes and will find themselves paying tax at a punitive rate to keep accruing and try telling that to the people who manage pensions who have to communicate and administrate this nonsense.

Unfortunately, there is no better news from the other side of the house, as the Labour Party are committed to exactly the same squeeze on high-earners.

The only difference between Tories and Labour is that the Tories are imposing fake giveaways as morale boosters to their hardcore voters and those aspiring to be housing wealthy, while Labour is inventing a “mansion tax” as part of its politics of envy.

It’s a simple choice – snobby or chippy.

It’s not even a tax-cut – just a poxy wealth protection scam.

If you think this is a mindless rant at  the pension hooligans who are behind Tory tax policy, let’s look at the numbers. They don’t suggest any more people won’t be paying IHT on their properties than today.

George Osborne says that increasing the effective threshold for married couples from £625,000 to £1m is going to impact about 11.5% of inheritances.

The last figures we have from HMRC (2010) tell us that only 2.5% of estates were subject to inheritance tax. It’s thought that because of house price inflation, 6% of inheritances are now affected and this will rise according to the OBR to 11.6% in 2019. So all these new tax payers are just ring fencing capital gains for the lucky few.

Even madder, these plans are not going to be brought in till 2017. Using the Government’s own estimates of house price inflation, the tax change will do no more than keep the numbers of houses impacted by IHT at 6% (unless that £1m is going to be adjusted upwards in line with the “swanky house index”).

All this tax giveaway is doing is putting housing wealth into a kind of IHT protected tax-wrapper that rewards the few and panders to the aspirations of the many.

So this is another phoney tax giveaway dressed up as “the big retail offer“.  This is as much about values as Arthur Daley’s lock-up.

Those with housing wealth are going to be bailed out by those with high incomes who will presumably  invest in bricks and mortar rather than in equities and bonds.

I can think of no better phrase for this than rearranging the deckchairs on the titanic. If this is the big retail offer, what about the rest of us?

And pensions pay the price for this foolishness!

Screwing up pensions still further , so that people can feel better about their housing stock is no way to manage a tax system!

Unfortunately, there is no better news from the other side of the house, as the Labour Party are committed to exactly the same squeeze on high-earners.

Both Labour and Conservative policies are sending out all the wrong messages. Pension saving is good for the economy, it creates the conditions for investment, propping up the price of our top-end housing stock does nothing for most of us but encourage us to further indebtedness.

Whether you are robbing pensions to pay for IHT giveaways or for the NHS, you are robbing the wrong pot guys!

Conning people that their housing rights are in perpetuity

Stating  that Osborne  is legislating for

” The basic human instinct to provide for your children”

is a total nonsense. The housing stock is already mortgaged to pay for the retirement income most people haven’t saved for and for the long-term care that the nation cannot afford other than by drawing down on the property.

What’s more, these houses are unlikely to pass across generations, the kids will typically have a row about ownership and the property sold. This is the pattern of property succession that proves that the “provided for” children are rarely the better for their parent’s munificence.

The office of pension irresponsibility chooses to avoid mentioning these harsh truths and is treating us as precisely the gullible fools that fall for pension scams. If I had any inclination to vote for Osborne and Cameron , it is gone.

Pray for Steve Webb, let’s hope he can moderate this madness.

The best we can hope for is for some sanity from the Liberals and Steve Webb, delivering a sensible reform to pension taxation that gives everyone one rate of tax relief and stops these ludicrous complexities dreamt up by people who know nothing about the pension system.

Posted in auto-enrolment, Change | Tagged , , , , , , , , , | 4 Comments

Why are we so unproductive?


News is out that Britain produces in five days what the French produce in four

Robert Peston has written a series of articles on this over the past few days. Here is the gist of it.

on the basis of the figures published on Wednesday, if the productivity trends of 1992 to 2007 had continued from 2008 to the end of last year, output per job would be 15% higher than it is, and output her hour would be 17% higher.

Which means, all other things being equal, each of us would be paid 15% more in total, and 17% more for each standard shift we put in.

Economists argue why we have and are falling behind countries we benchmark ourselves against

1. Productivity growth before the crash was exaggerated by the spurious productivity of banks and City firms that were taking crazy economy-imperilling risks;

2. Since the crash, too many lame duck firms have been kept afloat, under pressure from politicians, preventing the necessary re-allocation of capital from low-productivity firms to better ones;

3. As a nation we’re lousy at innovation and we don’t have enough highly skilled people (compared with Germany, for example);

4. The City is too short-termist and is hopeless at investing in winners;

5. Companies lack the confidence to invest adequately in expensive new kit, and would rather incur the costs of taking on cheap people to boost output, confident they can fire these people if all goes pear-shaped.

I will return to a consistent theme of this blog, that of the financial services industry’s obsession with intermediation.

Chris Radford has written on here about our need to produce better product that does not force us to pay for advice that we can give ourselves.

The Telegraph asked the question “what do I do with a £100k pension pot; I don’t want to pay for advice”. Andy Young and I tweeted the question and got this reply

Suggesting that we might be able to deliver more for less by embracing new technology, meets with (at best) a stony silence, more like active hostility from those who will not embrace change.

Every conversation I have with insurers about pension freedoms ends with hand-wringing about my obsession to give people what they want when they want it. We cling to out-dated service level agreements as if consistency with the past is more important than the challenge of the future.

While PayPal forges a future where a large part of our economy will operate not just without cheques but through mobile phones, pension providers complain about the difficulty of ditching legacy systems.

Complexity is needed to maintain the status quo, the status quo involves high levels of employment but low levels of productivity.

The drivers for change are coming from other countries where the idea of controlling your retirement pot using an app is not fanciful but the reality.

Today I will be discussing with people who have no formal training in Pensions, how we can make end to end processing of that auto-enrolment process a reality for payroll, employer, employee and member. All the innovation in this area is coming from young people who are seeing opportunities to innovate. The resistance to change comes from those clinging to yesterday’s distribution model.

All this will make a lot of people cross, and that is part of the problem. We have a nostalgia for a mythical world where pensions work, that drags us back as we reach for change. I see our pensions industry and weep, that so many people are employed without gain , doing jobs that could be automated freeing them to do productive things like making sure people’s money goes further, is more spendable and provides security and happiness rather than frustration and disappointment.

If this sounds a rant – well it is! We need to change the way we do things, shape up to the world we live in and restore confidence in pensions. Are we really doing that?



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Auto-enrolment needs payroll and advisers on the same page.


News reaches me from up north of an abrasive public meeting in which a major payroll disputed the value of financial advice in staging auto-enrolment. I need not name names, sadly it comes as no surprise to hear a payroll software providers feel it can go it alone, nor  financial advisers feel they are being cut out of the action.

It is only a surprise to hear the problem being so clearly articulated

Advisers were disrespected and the conclusion of two independent people who attended and passed feedback to me was this meeting was totally hijacked by (x-payroll) – who implied that (x-payroll) could fix everything and Advisers were unnecessary

The reality is that payroll processing is about as far removed from financial advice as the sea is from the mountain. Payroll processing is about the elimination of manual processes, financial advice is about preserving human interactions. Payroll looks to straight-through processes, advisers look for deliberation, consideration and reflection.

The problem is this..

pension capacity

The numbers of staging  employers from the end of this year, so dwarfs the numbers we have seen so far, that a wholesale change in the delivery mechanism for advice is needed.

Not only are the new employers smaller, they have (by and large) no experience with pensions. The problem with the straight-through payroll process is that it commoditises retirement savings into a step in the workflow. the problem with the advisory process (as we have known it these fifty years) is that it destroys the workflow.

The frustrated IFA wrote me

The meeting was only about (x-payroll), Advisers were disrespected and the conclusion of two independent people who attended and passed feedback to me was this meeting was totally hijacked by (x payroll) – who implied that (it) could fix everything and Advisers were unnecessary

I’ve had dealings with “x-payroll” of late and I can sympathise. It appears to me that x-payroll is making a big mistake!

It cannot establish auto-enrolment for employers by disengaging them from “consideration, reflection and deliberation” on the pension decision. This is where employers will send their and their staff’s money for the next 30 years, the pension decision is of enormous consequence to staff.

This cavalier approach, which I am seeing a lot of among payroll software providers is part the problem of advisers.  They have short-sightedly argued that auto-enrolment is all about payroll for the past three years.  They should have been more careful what they wished for!

There is only one way of squaring the circle and that is to make the choice of pension contribution (including decisions on salary sacrifice, postponement and phasing), the choice of pension provider and the delivery of personnel data from payroll to provider – a straight through process.

So the adviser must be – at least in the staging process – virtual.

If telephone or face to face advice is called for- it must be available – but it needs to be priced at realistic levels. Whereas the virtual process may cost no more than £100, it is hard to see how the equivalent process could be delivered through the standard advisory process for ten times that.

Even telephone support will be beyond the pockets of many small companies who really will need to engage with pensions using online tools.

The paucity of what we call “applied research” available on-line that delivers employer specific advice on pension choices without advisor intervention is conspicuous.

I cannot say it is absent – it is not – and readers of this column know where to get it- but it is not generally available and that is to the detriment of auto-enrolment and to financial advice.

Without it, payroll will properly point to advisers being too expensive, too disruptive and too scarce to meet the demands of 2016 and 2017.

Advisers have had five years to prepare for the problems we are now facing and the majority have done nothing to automate their services to meet the challenge. They must change.

Payroll should not overplay its hand, it cannot advise employers (even by offering a default) without skill and knowledge on pensions. It needs to facilitate advice.

Advisers need to step up to the plate and deliver advice in a way and at a price that befits the budgets of the smaller employer.

Most of all, payroll and advisers need to be talking and not squabbling. The last thing that auto-enrolment needs is staging without advice; nor does it need  advice without staging.

In a recent conversation , the boss of “x-payroll”cited the decision of the Pension Regulator to scrap its plan for a Directory of providers as evidence that provider choice was not part of the employer’s duties. Unfortunately, he is not alone in inferring this. I know this inference was not the intention of the Regulator, but it is an unintended consequence.

It is important that the Pension Regulator restates to payroll software providers and those who use it, that it continues to support measures that encourage employers to make informed choices on workplace pensions.

Otherwise auto-enrolment will become nothing more than an exercise in payroll compliance.

payroll compliane

Posted in auto-enrolment, Payroll, pensions | Tagged , , , , , , | 1 Comment

Should we be trusted with our pension pot?


Today’s the day those over 55 can start taking their pension pots as they like;-

  • except you can’t because the insurance companies are closed for the Bank Holiday
  • except  your defined contribution pension provider may not have adapted its systems yet
  • except you should still be in bed
  • and then have a conversation with Pension Wise

Pension Wise

  • and probably take financial advice

Most people are positive about pension saving

Whatever happens over the next few weeks, we’ll have the case study on Britain’s financial prudence/fecklessness or apathy.

This simple video can help you make your mind up about what is best for you

Your 3 pension options in 3 minutes from QR on Vimeo.

The last time we had such a pension plebiscite, we found- to our amazement that – we were all in. Well nearly all!

Those who have most to win from the pension freedoms- certainly from a tax point of view- are those over 50 with no pension savings and little  prospect of retirement income. Ironically, this group of workers has been most reluctant to pick up the free money available from the taxman and their employers.

But too many older workers are giving up on pensions

Amidst all the noise about scams and Lamborghinis, spare a thought for the 23% of the over 50s who opted out of auto-enrolment. You can read the Government’s report on older people’s attitudes to pension saving here.

opt-out rates

People cited

  • concerns about affordability
  • they already had enough in retirement
  • they were too close to retirement
  • contribution rates were too low
  • were thinking of moving employers
  • were concerned about pensions as a means of saving

For the vast majority of the over 50s opting out, it looks as this decision will be a bad decision which will only benefit employers and tax-payers. Almost all these excuses for not saving look feeble, certainly for those who do not have substantial savings “in a pension”.

What’s more, these look the most vulnerable group for whom the time to save is running out and the prospect of long-term poverty in retirement is greatest.

Should we be sending Panorama after these people? Should they be hounded by pension experts wagging their fingers? Should their employers be exposed for allowing these decision to be taken on their watch?

We should not.

We should trust people with their own money. We should trust the free independent guidance from Pension Wise. We should not be pointing fingers.

The upgraded state pension should be enough to ensure that the vast majority of people will not be a burden on the next generation or indeed on other members of their generation.

Most people build up more in state benefits than in private pensions, especially if you count civil service and local Government pensions as part of the state system.

Stop wagging that finger!


The bad mistakes that people make, whether in failing to pick up free money as they work, or in giving back tax relief when they retire or (in the worse case) blowing their money on some idiotic investment, are those people’s to make.

There is a proper system of controls in place, including the guidance from Pension Wise . People want choice but don’t want to take irreversible decisions. For the most part, the choice people will take will be to work longer, save harder and wait till a viable pension option comes along.

Start making pension spending easier!

We really have to bring down the cost of spending our pension savings. The cost of annuities, the cost of drawdown and the cost of advice are too high for people with limited pension wealth. To independently manage an income through the whole of the rest of our lives, we need to (individually) be our own chief investment officer, actuary and pension administrator. For most people that is simply not on.

how long will your pension last?

We need a collective means of spending our savings and the sooner the better. A collective scheme that can be fair to all but which allows people the right to change their mind, gives peace of mind to those worried about money running out and which allows people to have confidence that their later life affairs are being properly minded.

Don’t press any panic buttons.

It took Osborne five minutes to announce but it may take five years to get the new options properly in place. Getting a new pension system in place that can allow people to spend their money through target pensions may not happen much before 2018. This is not because of lethargy among policy makers but because pension policy is complex and every change throws up many loopholes.

We must be patient.

In the meantime

There is much can be done as interim measures. Insurers and pension administrators can improve processes to help people spend their money using drawdown, annuities and the cash-out option, much more efficiently than is happening today.

New technologies make cash payments cheaper and easier. If it is possible to buy a loaf of bread in Kenya with a mobile phone, surely it should be possible in Britain  to draw money from your pension via an ATM (some day soon!).

Freedom – a moral right

We are a liberal society that believe in allowing people to pursue their lives as they wish. We have constraints to protect others, but we know where to draw the line. The line was drawn in the wrong place with pensions. Annuities were killing pension savings and the pension freedoms give people back ownership of their pension pot.

The success of auto-enrolment has shown that people are not financial luddites, given the opportunity to save, they will save. The relatively  high opt-out rates among the over 50s demonstrates how disaffected some older people have been by the pension system.

The task of those working in pensions over the next five years is to restore confidence in pensions. That is a huge and challenging task and it is our moral duty to help rather than hinder that process.


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LTA exposes the DC horror-show.

dc horror show

Because I am on holiday, I am reading the Sunday Papers. Someone has bought the Sunday Times which I haven’t read for at least 2 billion years. I’m left with the business pages and two articles by Ian Cowie about how “suddenly pensions are tumbling down”.

This is the story of how George Osborne has made it impossible for hard saving folks (like me) to save enough to buy an annuity of £27,000 or a defined benefit pension of £50,000.

I agree that capping people’s ambition at £27k pa is pretty mean but of course this assumes you buy a proper escalating annuity with some protection for your loved ones.

I also agree that it is absurd that while the £1m Life Time Allowance only buys a proper annuity of £27k, it buys a comparable DB pension of £50k pa.

I even agree that it is absurd that MPs get wonderful DB pensions while most of the rest of us are landed with rubbish DC.

But that’s when a few bells should start ringing in the orderly mind.

Why should £1m buy so much lower a DC pension?

Well – you could argue that an annuity is guaranteed for 100% of its payments while only the first £32k pa or the DB pension has the protection of the Pension Protection Fund. But as the guarantor of the PPF is ultimately the taxpayer as is the guarantor of the MPs and most remaining open DB plans, this point is academic.

Ever since the Government Actuary published his tables that estimated the cost of a pound’s worth of DB pension costs £20 while a pound’s worth of DC pension costs £30, I’ve been trying to find out why.

There are a whole lot of reasons, which include the fact that DC pensions are subject to EU Solvency rules while DB plans aren’t. They include the margin that has to be paid to the shareholders of the annuity insurer. They include too the efficiencies that are created by individual policies rather than he collective structure and payment systems of a DB plan.


So while I’m very angry that the Chancellor is again punishing the hard working regular saver (rather than the opportunistic tax-dodger), the real scandal lies in the difference in the conversion rates between DB and DC.

Why isn’t Ian Cowie asking the more fundamental question as to why George Osborne can get a pounds worth of protected pension for £20, when the likes of him (and me) have to pay 50% more for the same thing?

The answer is why most people need DC pensions being paid as DB pensions as they would be under CDC. The answer is not to restrict the amount DC savers can save but to ensure that DC savers can have the same deal as those dished out DB benefits.

When I went to hear Andrew Neal talk about the budget, he made Ian Cowie’s point that he would not be saving further into pensions because of the risks that any future Government would make another retrospective tax-raid on our retirement security.

Andrew Neal also mentioned the unjust treatment of DC savers, relative to DB savers but those GAD numbers are not  there to annoy Ian Cowie, they are there to highlight how horrible the fate of the DC saver is.

If Ian Cowie, Andrew Neal and George Osborne really want to get the tax treatment of pensions right, they would promote the DB way of doing things and accelerate the sift from DC decumulation to CDC decumulation.

But that might involve a little bit more engagement in the fundamentals of funded pensions , than we are getting today.

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The price of choice


It is becoming increasingly clear that the progress of the auto-enrolment project is balanced at the fulcrum.

Until now attention has been focussed on the technical details surrounding the auto-enrolment process.

But we are moving towards a new phase where the primary focus will shift to the point of auto-enrolment, the business of saving money for retirement.

The reason is simple, until now the 43,000 employers who have staged have been familiar with this pension business. From now on, an increasing large proportion of the employers staging will have no experience of saving into a pension , either as owners or on behalf of their staff.

The business of diverting a proportion of the company profits for the staff’s benefit has been the choice of the boss. No longer! The boss has to fork out and what’s more, the success of the enterprise, in terms of the investment of the money, is in the boss’ hands.


The pensions industry has been busy rubbishing auto-enrolment as “all about payroll”for the past three years , but soon it will have to change its tune. To me auto-enrolment is more than an inconvenience , it is the main event for the 5m employees who have never been offered a pension.

For these people, auto-enrolment is very much about the pension. The prospect of 8% of a high proportion of earnings being paid into my account, even if I have to wait a couple of years to get up to full speed.

Which brings me on to the one choice the employer really has to make, the choice of workplace pension.

Those who are planning to default thousands of employers into workplace pensions are, in my opinion, making a big mistake.

It is taking the Michael to suppose that people will put up with being palmed off with “it’s all about payroll”. This is people’s money, money that will be available in years to come however people want it.

I don’t think for a moment that employers will pay over 8% of band earnings into something they know nothing about. They may do for a couple of months but sooner or later they will have staff asking exactly what is going on with their money.

So if you are planning to offer the employers you look after a default pension arrangement you need to be pretty sure of why.

You will need an audit trail that tells you why you made the choice that you did and why you didn’t choose other providers.

The price of this choice need not be high. Technology can analyse employer’s needs and put forward suitable providers prepared to make an offer. Technology can provide a digital report explaining why one provider makes sense to you and why others don’t.

The price of this choice is no more than a couple of hundred pounds and if you want your clients to make informed choices , rather than go with your choice, press this



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Great news for auto-enrolment as systemsync gets its funding.

Will Lovegrove (with child)

Will Lovegrove (with angel)


The news that systemsync has got over £800,000 of angel funding should delight anyone wishing to see auto-enrolment work for our SMEs and micros. It’s going to be good news for payroll software companies and good news for pension providers.

The digital plumber

SystemSync is a digital plumber, providing the pipes through which people’s data can flow so that the right money goes to the right place at the right time. They make sure that the pipes don’t leak or worse rupture, spilling personal data all over the net.

My personal experience of working with Will Lovegrove , the architect of the deal and genius plumber, has been a happy one. So far, he has overseen much of the development work on PAPDIS, working with the CIPP and tPR as well as a group of providers and payroll software houses.

PAPDIS is the file format we hope will become a data standard. to use the plumbing analogy PAPDIS ensures that what goes into the system has the right ingredients, SystemSync makes sure that these ingredients come out the other end of the pipe just as needed.

Will has given of his time for nothing to make PAPDIS happen. I hope PAPDIS will be the launchpad for his wider aim to make auto-enrolment happen for everyone.

Three immediate benefits from systemsync’s work.

The new technology means that there can be an integrated approach to data transfer, reducing risk to payroll software company and improving efficiency. The investment they make in adopting systemsync’s approach is repaid in lower ongoing costs and lower operational risk.

For payroll bureaux, managed and in-house payrolls, systemsync’s plumbing means that data can be exported at a push of a button. The laborious processes of creating CSV files and exporting them manually to pension providers could be a thing of the past.

It means that insurers have data that is delivered to them in a format they can recognise so that they get things right first time. The expensive difficult work of unpicking data errors can be much reduced, IGCs and master trustees should be breathing a sigh of relief.

But best of all, systemsync can now deliver the means to make sure those who work for SMEs and Micros can share in the auto-enrolment revolution just as those who work in the larger companies are doing. Technology democratises good practice and systemsync demonstrate that process.

Democratising best practice

Just as we at pension playpen are using technology to ensure that smaller employers can make informed choices on the workplace pension, systemsync’s software will enable their data managers to provide a quality of service you’d expect if you worked in a FTSE100 company.

No one should get left behind. In all my dealings with Will, I have sensed I am working with someone who is not thinking about how things are, but how they should be. In the Pension Bib meetings, Will has become a touchstone for best practice and has shown an absolute commitment to making sure auto-enrolment is done right.

When I spoke to Will last night, we were clear that we work to the same purpose, to make sure auto-enrolment delivers the best pension outcomes to its participants. While we may be front of  house selling best practice in pensions, Will is busy as stage manager.

While we pour out the ingredients , Will is managing the plumbing.

We should be very happy, grateful and supportive. Well done Will and your team. I hope that your “plumbing” is adopted by all payroll software providers , benefits payroll managers whether in-house or agents and enables insurers and master trusts to continue providing auto-enrolment services for decades to come.

A video and a press release!

Here’s press release announcing the deal and Will’s brilliant take on how auto-enrolment did for the Third Reich


Systemsync solutions ltd is pleased to announce an initial investment of over £800k from a small group of angel investors to complete product development, and start delivery following commercial launch.

Systemsync solution ltd’s Data Integration Platform, addresses the iPAAS (Integration
Platform as a Service) market, allowing clients to easily integrate disparate IT systems within and between organisations. Being Cloud-based, and including high levels of data encryption,the Data Integration Platform is particularly suited to high volume integration in markets where regulation and commercial sensitivity is key, as well as for smaller and medium-sized organisations who cannot afford the cost and complexity of more traditional data integration solutions.

Systemsync Solutions Ltd was founded by CEO Will Lovegrove and two colleagues as a spinout from their previous business Release Consulting Ltd, which has provided outsourced software development and support services to major music industry clients for over 8 years.

Eight additional staff are also moving from Release Consulting Ltd to systemsync solutions ltd following this initial investment.

Systemsync solutions ltd has the UK’s auto-enrollment pension market as its initial application area. Having identified a significant gap in the market, they started developing the software over 12 months ago and it is now in beta tests with several Payroll Software and Pension

Provider organisations.

The software will enable low cost, easy, safe and secure transmission of millions of individual’s pension data from either Cloud-hosted or Desktop Payroll Software applications to the multiple pension providers who offer workplace pension schemes to UK businesses. As part of developing this market opportunity, systemsync solutions Ltd has worked alongside The Pensions Regulator, The Chartered Institute of Payroll Professionals and major players in the market to define The PAPDIS data standard for this market.

Will Lovegrove said that

“We have worked hard for over a year to create this product and
position ourselves into an initial, large, marketplace. We are very pleased to have attracted several high profile investors for this initial round to take us through to establishing a strong foothold in the market, and much appreciate their confidence in our business”.

The team has been working over the past 5 months with Alwyn Welch, former CEO and
senior executive at Aircom, Parity, Unisys and Cap Gemini. Welch, who has now joined
systemsync as Non-Exec Chairman, commented “ I am really pleased to be joining Will and his team in this very exciting company, building an iPAAS product that has application across many sectors”.

For further information please contact:

Will Lovegrove, CEO, on or 07515 721603

Alwyn Welch, Non-Exec Chairman, on

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We need a tank to get us across this battlefield!


It is  a truism of current pension policy that the DWP deliberates and the Treasury pulls the trigger.

The Treasury approach certainly attracts headlines but will create casualties “through ignorance, weakness or our own deliberate fault”.

Nowhere will the blood be spilt as it will be post April as the entire population of those who have ever reached 55 with a DC pot will be in a position to release some “sexy-cash” from their pensions.

How “Sexy-cash” has been turned from evil inducement to healthy incentive

Sexy-cash is not my term, it is a term used by Steve Webb to describe the cash inducements that were used to lure people away from the guarantees in their DB plans. Only a couple of years ago, the idea that cash inducements might be used as a means to freedom would have been laughed out of court.

Add to the 6m who are in possession of an income secured by an annuity purchase, the 400,000 reaching 55 this year and a proportion of those yet to draw their DB pensions (up to 8% of those in funded DB (Hargreaves Lansdowne) and you get an idea of the carnage that could ensue.

The problem is that while we’re all dressed up- we have nowhere for our money to go.

There are not enough financial understand  (see my article on this, this week)

There is not enough advice

There is no obvious product for the silent majority of us who have no wish to buy annuities and no capacity or appetite to manage our own self-invested income drawdown arrangement.

Redington have been writing about the shift in responsibility from collective to individual


We are like the young men of England and Germany marched off to Flanders from 1914. We might think this is collective endeavour but once the whistle blows it’s every man for himself.

George Osborne reminds me of General Melchett ordering his men out of the trench into the teeth of enemy gunfire. Except Blackadder was a comedy.


This battlefield needs tanks, this ship-wreck lifeboats!

In the face of the carnage to come, the bloodbath created by the office of pension irresponsibility (the name by which the Treasury should be known) , we need a lifeboat , or to extend my analogy, a tank behind which we can hide.

We need a middle way product between drawdown and annuity that looks like a pension but has property rights so people can move into an annuity, into drawdown, or just cash out.

We know for research done by Aon  and the DWP that around 70% of us, when asked what we want from our pension pot , describe a pension.

The only way that we can offer more than an annuity, without the uncertainty of a drawdown is through a non guaranteed target pension – what is referred to as CDC.

Unless we have a clear purpose for CDC- we should mothball it.

But with the print still wet on the Pension Scheme Act that allows CDC to happen, Dame Ann Begg, Chair of the DWP Select Committee on Pensions called for a halt to work on the secondary legislation on CDC.

She also calls for a review of just about everything else going on right now which is like trying to direct the traffic at Spaghetti junction!

I am not overly concerned by calls for policy changes within 50 days of a general election, all now is just political posturing, but I am concerned that Dame Ann Begg, who is an extremely able politician, has not had the opportunity to understand just why CDC is so relevant to the problems we are and will face.

Those of us who are Friends of CDC (and we are meeting the DWP next week to discuss this issue) need to be absolutely clear about the relevance of our product.

We must dispel myths we have created and allow to malinger to the detriment of CDC and our pension system.

CDC is not a means to replace DB (though it could be used to de-risk the most derelict schemes as it has been in Canada (New Brunswick).

Nor is CDC a means to replace DC workplace pensions (which are working very well thank you)

CDC is the tank behind which we can move across the battlefield

CDC is the tank behind which we foot soldiers ,out of our trenches, can move forward. CDC is a means for us to receive more income from our pension pot than we can purchase from an annuity and more security than we can extract from income drawdown.

CDC is a means of collectively insuring ourselves against living too long, while offering those who do not want to join the pool to bet individually underwritten for an enhanced individual annuity.

CDC is a means of having something that works like a DB pension but with the option of cashing out at any time.

In short, CDC is the answer not the problem. To stop working on CDC would be as crass an error as IBM ignoring personal computers or Nokia not building a smartphone.

The reason that Dame Ann Begg and the DWP select committee see CDC as a luxury that can be mothballed is because they have not been misled about what CDC should be.

But CDC and employers don’t mix

So let me make this absolutely clear. CDC is not going to work as an employer sponsored product. That is because employers do not want to participate in any pension where there is a risk (however remote) that they might be responsible for the member outcomes.

CDC will not work if employers have to pay into it or even be deemed a “participator”. Nor will it work as a group of personal pensions. The two existing pension structures which dominate private pensions are simply not fit for the purpose of clearing up the carnage of pension freedoms.

We don’t just need CDC, we need CDC in a new pension product that has the collective properties of an occupational pension scheme but the separation from the employer of a personal pension.

Into such a structure can be tipped the proceeds of our DC saving. Like the farmers in a European commune bringing their grapes to the collective vinery, we can exchange our money for pension.

The structure I am talking about actually exists, there is a statutory instrument on the DWP’s statue books which allows a Regulatory Own Fund (ROF)to be created for undefined purposes. As I understand it, a ROF is no more or less than a super trust like the Pension Protection Fund, set up by Government for the public good.

The ROF is my tank, or my lifeboat if I want to switch from the battlefield to the shipwreck.

CDC is the means of salvage and- much better- the means of salvation.

The simple solution to Dame Ann Begg’s problem!

You may wonder why Dame Ann Begg and the DWP Select Committee do not know about all this. You would be right to wonder- I wonder too. I don’t understand why many of our Friends of CDC keep peddling the idea of CDC as a replacement for DB or for workplace DC. Nor do I understand why they want to make CDC employer sponsored.

CDC – to work – must have nothing to do with employers. All employers need to do is signpost Pension Wise, or in extremis, explain that CDC exists.

All the Government needs to do is to allow this paired down vision for CDC to be created through secondary legislation created within the DWP by their excellent policy team.

So long as CDC is targeted at the problem – the carnage of pension freedoms and not the success story (DC workplace pension saving schemes), it is hugely relevant.

If it is billed as an alternative to employers to DC and DB, it will be irrelevant and should be binned.

It is as simple as that.


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Dissemblance and dissolution

2015-03-14 14.09.51

The stone walls built from the Abbey pulled down in the dissolution



Britain’s most famous advert was produced by Ridley Scott for Hovis, it put my town Shaftesbury on the map for many people. A fake Hovis loaf still sits at the top of Gold Hill


up which the young lad pushes the bakers bike and at the bottom of the hill is Folly Cottage.

Folly cottage

Shaftesbury is full of such dissemblance. As reported yesterday, its parish of Cann and Melbury is patronised by St Rumbold a 3 day  child who came out of the womb preaching and the town’s fortune in the Middle Ages centred on it having the bones of St Edward King and Martyr. St Edward was sanctified by being murdered by his mother aged 9 and his bones transported from Corfe to Shaftesbury to protect them from Viking raids.

So you can see Shaftesbury as a town that has built its reputation on dissemblance. That brass band that plays over the advert ensured that Hovis was as popular up north as it was for those down south who identified with the West Country voice over.

Art is seen by some as dissemblance and others a way of seeing things another way -Ridley Scott’s way or the way of Medieval Ecclesiastics.

David Hockney, in a fine documentary on BBC2 last night talked of painting water as an opportunity to see what appears on the surface or what is going on beneath and “painting water” is a good metaphor for his art.

Alan Higham, who seems to delight in my epithet “evergreen moaner”, picked up on the part of the blog yesterday “beneath the surface”

While everyone has been going on about pension freedoms, people in the public sector have been continuing to accrue guaranteed benefits at a rate that those who pay their wages and pensions cannot afford. Yesterday, I gave as an example, Dorset County Council’s failure to build a bypass around Melbury Abbas, something that could was proposed 20 years ago. Now – the main road into the village is impassable and the Stour valley looks to de disrupted for years.

The drain on public finances of paying disproportionate pensions to those who control public finances is a scandal that far outweighs “annuity mis-selling”. It is plain misleading, to suppose that this problem doesn’t exist.

I guess that up until the dissolution of the monasteries, ordinary people in Britain put up with the stuff and nonsense of 3 day olds giving sermons and 9 year olds being sanctified for being murdered. I suppose that Ridley Scott’s career was made by pretending that Gold Hill and Hovis were the answers to a country riven by post-war blues.

But the monasteries were dissolved and the wall along Gold Hill is largely made of the stones taken from the dissolved Shaftesbury Abbey. The bones of St Edward King and Martyr now languish in a Maltese Bank Vault (still on sale to any branch of the true church prepared to suspend disbelief).

At some point, someone, Michael Johnson maybe, will be able to explain to ordinary people and extraordinary politicians, that having guaranteed pensions for those who Govern and workplace savings plans for those that don’t is about as tenable as the system of indulgences that supported 16th century monasticism.

They discovered this in Canada and have started moving to a fairer system using CDC. I suspect that at some time, incidents like the closure of Dinah’s Hollow in Melbury will convince us that Government pensions have to change and change properly. We wouldn’t want them dissolved.



For a great program on the LGPS which appeared on radio four this Sunday (March 15th) click here . the program features contributions from favourites on this blog including Michael Johnson and Dr Chris Sier as well as some not so favourite contributions.

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It’s all about Steve Webb – stupid!


Pensions Question Time at the PPI

Last night the Pension Policy Institute held a meeting to discuss the impact of next week’s budget on pensions. Expertly chaired by Paul Lewis, it turned out to be a meeting demonstrating the paucity of thinking available to Government if Gregg McClymont doesn’t win his Cumbernauld seat.

As well as our pension minister, the meeting heard from David Gauke (Conservative) and Stephen Timms (Labour). I do not want to criticise two hard working MPs, but frankly they are appeared like minnows to Webb’s leaping salmon.

There were two moments of great humour;- the first where Steve Webb asking Paul Lewis whether he could speak –  “or if we were returning to business as usual”.

The second;- Paul Lewis suggesting that for the conservatives to be outright winners and have the pensions brief to themselves, it would be under Prime Minister Boris Johnson.

After the meeting Jo Cumbo was tweeting that she had some pension intelligence from the Scottish Nationalists, that is how fluid the political climate has become.


Life after Webb

The watchword for post McClymont labour would be “consensus”, which could be rephrased “outsourced policy”. All pension decisions would (it seemed) be outsourced to David Blake and Debbie Harrison of Cass Business School who would be used as human shields to hide the paucity of thought on display elsewhere. Much as I like David and Debbie, they are not elected and represent a strand of left-wing thinking peculiar to Cass. Though we have contributed to their reviews, I am not comfortable with such a style of Government that abdicates responsibility for decisions and lacks all conviction. The only thing that Stephen Timms speaks about with certainty is that everyone should be paid the living wage. Noble as this sentiment is, it is not a pensions policy (unless we consider the living wage as total reward including employer contributions).

As for Conservative thinking, it seems to be about everything but pensions. When asked the question “how would you support employers to pay attention to their staff’s pension”, the line seems to be “wind up the staff – or in Treasury speak “apply a bottom up approach”. Similarly, market forces, rather than Government intervention can sort out the chaos that will follow the introduction of the freedoms. The departure of Mark Hoban from parliament looks a sore loss.

I dread to think what Nigel Farage would do to the carefully wrought plans for auto-enrolment; if he can chuck out 30 years of consideration of diversity legislation, why not can further roll-out to SMEs as “red-tape”.


Pension Policy – RIP?



Life with Webb

Despite Paul Lewis’ best endeavours to get David Gawke or Stephen Timms to say anything meaningful, the absence of Chatham House rules, the yet to be published manifestos and the manifest ignorance of two out of the three speakers, meant that this was the Steve Webb show (pt 63).

Webb claimed to have been castigated for not promoting the liberal cause more assiduously.  Frankly Steve Webb is the Liberal cause, if the party could re-model itself around his value set, speak with his candour and enthusiasm – it would run rings around the opposition- as Steve did for an hour and a half yesterday.

Pensions should not be a political football. The journey from becoming an eligible jobholder till dying will (statistically) be at least 70 years. Put another way, if we start saving at 22, we can expect- based on current mortality to live past 90.  If mortality trends continue as they have done the last 150 years, we will see 60, not as the beginning of the end, but the fulcrum of our financially independent years.

In this context, the management of our national strategy to ensure adequacy of income in later years, should not be subject to whether Gregg McClymont gets elected in Cumbernauld (I’ve a good mind to go up and help him this weekend). Nor should we hand over the keys to the Minister’s office to MPs who clearly have little appetite and less competence.

What yesterday’s meeting told me is that Labour and Conservatives have no leader to put forward who has the knowledge, passion and conviction to match Steve Webb. For the past five years we have been blessed not just with the Pension Minister of the century but with the leadership of a man who has been selected by his peers parliamentarian of the year.

It would be a good thing, whichever party is elected, to keep the pensions brief with Webb. If Webb does not get re-elected (perish the thought) then kick him upstairs and give him the brief from the Lords (as a cross-bencher).

Pensions under Webb!


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An escape plan for pensioners or pension schemes?


This from Jo and Jim at the FT

Radical plans to give millions of existing pensioners new flexibility to sell their annuities for cash are under serious consideration by ministers ahead of next week’s Budget, building on the far-reaching reforms of the pensions system announced last year.

Jo Cumbo’s sources are Treasury sources, having found one rabbit in  the hat, it looks like they’re going for the cat.


Scalping annuities – a victimless crime?

This is the political equivalent of a “victimless crime”, there is no market interference , only a removal of previous interferences and a destigmatisation of the currency of death.

It may seem bizarre that there’s demand for income that’s life-dependent but there is. Like bookies with too much money staked on people dying tomorrow, our financial markets are short on immortality. They need healthy annuitants and their income streams to balance their books.

So if you go down to the financial woods today, don’t be surprised to find a bunch of insurers , reinsurers, pension scheme trustees and bankers, only too happy to offer you a price on your life. Infact they are circling for your money like a scalp for your ticket.

Collectively we’re short on immortality


A ticket for the wrong gig?

And the chances are , if you’ve bought an annuity, you think you have a ticket for the wrong gig. If you bought your annuity ten or fifteen years ago, you will  be pleasantly  surprised by the deal you are offered, you bought into the market when there were expectations of interest rates remaining high.

But if you bought your annuity recently, you may be in for a nasty surprise. Even discounting the payments you’ve already had, you won’t find yourself being offered the money you paid for the thing.

Unacceptable spreads?

Part of this is of course to pay for the costs of trading and the margins of the sale. As those evergreen moaners Higham and Ralfe put it

But the debate about whether we should have a second-hand annuity market goes deeper than talks of fleecing, the Treasury are simply extending the liberalisation they started when Osborne told us we need never buy an annuity again.

Where will it end (snorts the actuary)?

And if you can release people from the bondage of the annuity, you can release them from their final salary  pension (I am sure that the school shop will be only too happy to take back that uniform). Why stop there – why not pay out the basic state pension as a lump sum based on GAD rates, or better still as the sum of your national insurance contributions with a bit of interest on the top?

I am sure that Steve Webb lies in bed at night with these mischievous thoughts jumping up and down like sheep over the stile.

And Webb, Parliamentarian of the year, cheeky chappy from the black country is having a good old laugh at all our expenses – as you would.


Stevie Webb- having a laugh!

Far from being appalled, Webb- and I’m right with him here, is crying “bring it on- let’s have a debate about pensions that people can understand”.

If we can find a price for a second-hand annuity, we can find a price for that DB pension and the State Pension , and when we know what people are prepared to pay for these things, perhaps we’ll be a little a bit more serious about cherishing them.

Infact, if we knew the value of these pensions, with their guarantees, we might ask more questions like-

“how much could I get without the guarantee (CDC) and how much would I need to have to manage my own pension (income drawdown)”.


Lighten up – the Cat in the Hat is back!

This is, I hope, the reason for the FT being fed this stuff as we start the glide path to May’s election. For Osborne, this is about ensuring the debate on Freedoms does not descend into a bitch about Pension Wise and advice and guidance. For Webb it is about his life’s work, getting people to pay attention to their pension.

For the pension industry, it is another chance to shoot itself in the foot by stifling debate, or it is a chance to come out and shine (as usual Ros Altmann has seen the bigger picture).

I’m with Webb and Altmann and strangely I am with the Treasury. We need a national debate on pensions, on pension risk and on how we fund our old age- especially the unhealthy long-tail of decrepitude.

Last year we had the rabbit, this year we have the cat, that hat has a few more surprises yet- I’ll be bound.

In the mean time watch the Human League sing “Dreams of Leaving”, a song that has haunted my adult life and should be the soundtrack to the pension liberation debate.


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An alarming gap in pension regulation

free money

As we trundle towards the end of a parliament , of a financial year and of a pension tax regime there is a gung-ho spirit about. The Pension Schemes Act received Royal Assent and the major projects are all intact. None has failed yet.

Yet we know the big challenges fall beyond the scope of this Government, pension freedoms will be exercised the other side of a general election as will the auto-enrolment stagings of the vast bulk of our employers. Enforcement of the further measures protecting savers into workplace pensions resulting from the OFT report will be the job of  new Ministers and their regulators.

The potential for the ball to be dropped is one thing, but the absence of rules surrounding the playing of the game is another.


It’s been remarked upon that much of the detail surrounding Pension Wise has yet to emerge and April 6th is nearly upon us.

What has got less comment (though plenty on this blog) is that at least a million employers are set to start pension schemes for their staff without the least knowledge of what they are doing nor guidance as to what to do.

While we have the (barely used) master trust assurance framework in place for trustees, and IGCs in place for contract-based providers, employers have virtually no guidance on what to do.



It is just as well that guidance on pensions is unregulated as there are precious few regulated advisers in a position to advise and those who are advising are generally recommending products they manage.

Employers are being asked to choose a pension but are generally being offered little or no choice. It’s NEST , or at best a choice of NEST or NOW or People’s. At worst it is the home-brew solution of an adviser. The independent in IFA seems, in this market at least, a distant memory.

Whereas the first five million auto-enrolled are in pensions which were advised upon and purchased with a degree of diligence, the next five million look like being enrolled in auto-purchased plans about which no-one knows very much.

These are precisely the conditions in which the scamster prospers with low levels of knowledge among those purchasing and low levels of regulation of the purchasing process.

Thankfully, the most foolhardy suggestion, that of a Directory that would have legitimised bad practice, has been dropped. But there is nothing to put in its place -yet.

This is where those who care about the purchasing decisions made by employers on behalf of their staff should be stepping into the regulatory breach. It is now becoming clear that traditional regulations are not fit for purpose, the 6 Principles and 31 characteristics of a DC scheme, put forward by the Regulator are of no purpose. The Master Trust Assurance Framework is neither adopted nor promoted, it is gathering dust on the shelf. There is nothing currently coming out of Brighton to suggest that SMEs and Micros will be protected from their own ignorance.



Other than the obligation to “choose a pension”, there is nothing in Regulation to suggest how this should be done, what makes for a good choice and how that choice should be communicated to staff.

This last point is of particular importance. If we are to have any hope of improving understanding and member behaviours, we need people to be confident into what they are saving into.

Most people who are enrolled have no understanding of where their money is going nor why it is going there. Nor will the people who chose the pensions!

This ludicrous state of affairs is happening because of the absence of any accountability for this part of the process within Government.

The FCA will say that this is part of the DWP’s remit. The DWP will point out that this is a distribution issue and that the distributors are FCA regulated (if regulated at all). The Pension Regulator for auto-enrolment , points to the Pension Regulator for DC schemes who points back. The Treasury is busy elsewhere.

So we trundle on

  • An accountant stands in front of 150 IFAs at the AE invitational in London and states that he is recommending a default pension solution to his clients – no questions are asked.
  • An accountancy network choose a national IFAs master trust solution for it’s 4000 members, no questions are asked.
  • NEST pleads with advisers to recommend its product on its investment merits, no questions are asked.

This is the consequence of allowing the investment of people’s salary to fall off the auto-enrolment agenda from 2012 to today. Since stopped paying attention to the pension, concentrating on middleware and AE compliance, we have lost sight of the wood.

Thankfully, we seem to be awakening from the era of “pension agnosticism”. We can either return to a system of independent advice where employers pay to learn about pensions, or we can have a free for all where advisers and conventional providers compete in a land-grab for as many of the remaining 1.2m employer’s business as they can get.

The question is whether we get a referee or whether this turns into an unseemly bunfight, whether there are rules that govern good practice (which are kept) or whether it is every man (and conman) for him or her self.

We have about six months to get ourselves sorted on this. By the time we get to Q4 2015, nearly as many employers will be preparing to stage as had staged in the previous three years. They will be preparing often without advice and with little guidance. It is critical they do the right thing by their staff.

If we do not get some proper purchasing into the system, we can expect to see employer and employee contributions being woefully invested.

In this world, the best lack all conviction

while the worst are filled with a passionate intensity.

Let us hope it does not come to that, but for us to avoid this problem, we should, as the Regulator asks us to do, pre-plan.

Except this time, we look like we are going to have to do the Regulator’s job for them.



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Hats off to the Regulator – there is no shortcut to good practice.

Pension information

The Pensions Regulator has scrapped a plan to list auto-enrolment schemes on its website. We in the Pension PlayPen are pleased. We put our views to the Regulator (you can read them here), we can sum them up by saying that “if a job’s worth doing, it’s worth doing well”.

The Regulator agrees saying that it has now dropped the plans over fears the list could not be objective and transparent with our substantial assessment of all listed schemes. This was precisely our point. A bald list of schemes prepared to quote for everything would have presented a charter to every snake oil salesman and seamster who chose to set up a master trust or rent an personal pension licence.

The last time the Regulator tried something like this was for Stakeholder Pensions and that list has not been updated since 2001! So well done the Pension Regulator for listening.


We all agree SMEs and micros need support choosing a pension

I think there is a consensus that we need to find a  proper way to support small and micro employers finding  their scheme.

We believe this  way exists and, I’m pleased to say it has already been used by hundreds of employers up and down the United Kingdom – it is of course

In case anyone is in any doubt of the seriousness of our project, we will be meeting with the Pensions Regulator next week to discuss with it what can be done to ensure that employers do not sleepwalk into NEST or any other “default provider” put up by an auto-enrolment adviser.

Do we want a big three?





This is a rather more positive position than that reported in Money Marketing  by NOW and The People’s Pension. Their moaning about tPR favouriting NEST is understandable, the DWP owns tPR and it’s put £600m behind NEST but I do not get any sense from the Regulator that they “it will only flag NEST”.

NEST reported in its Insight 15 document that many providers they spoke to looked no further than NEST and, if they did, looked only at People’s and NOW.

This is not a good situation, any more than having a premier league comprising Chelsea , Man City or Man Utd. Currently Legal & General and Standard Life are regularly chosen from and there is a long list of insurers and mastertrusts that are used less often.

Where would a premier league be without West Ham,Southampton and Swansea?

We suspect that the lack of research by employers is not because they do not want to know what is available to them, but because there is insufficient awareness of “teams lower down the leagues” that are particularly relevant.

If you are a construction company in Northern Ireland , you should not ignore the Workers Pension, if you are a Social Housing organisation, check out Pension Trust’s Smarter Pension and if you are a member of the Federation of Small Business, get the excellent terms they offer on the Scottish Widows GPP.

Many of these propositions might normally be overlooked, but provided you fill in our fact find, you will find your way to these workplace pensions.


Informed choice, comes from knowledge not lists

I was asked by Money Marketing for a comment on the criticism of the Pension Regulator and have made this statement

Nest is not the only fruit and employers who don’t look at alternatives are failing their staff and leaving them exposed to criticism or even litigation, especially if the scheme chosen under performs. NEST acknowledge that employers should document why they chose NEST and there’s no way an employer can do this without reference to other schemes.
So employers need to know the choices available to them and in theory a directory is a good idea. But in practice, the directory tPR was proposing could not work. The only criteria for inclusion would have been that the scheme qualified and was open to all  employers. This would have been a charter for every snake oil salesman in Britain to legitimise their product on a Government site,
Information is not knowledge, knowledge comes when the information is presented in a sensible way that enables employers to make informed choices. The Pension Regulator took the decision that they could not present a directory that was ambitious enough to give employers guidance. Working on the principle that if a job’s worth doing it’s worth doing well, they decided not to do the job at all. We think this was the right decision.



How we shortlist providers

I’ve been asked to provide a statement of how we choose who appears on our shortlists

All the credible providers are researched. Occasionally a provider who meets our criteria will not complete due diligence and chooses to be excluded. Currently two products that meet our criteria for selection are choosing to be excluded (Corporate Vantage and Supertrust).

Sometimes, providers choose to be temporarily excluded. Friendly Pensions is an example of a provider that has asked to be excluded for a quarter as it makes changes to its proposition.

We want to be inclusive, but respect providers who do not want to be researched and have their products compared.

We do not currently include the GPPs offered by advisers which dress up existing products in their clothing (examples CBS’ version of Scottish Widows GPP) or Aon’s version of Blackrock’s GPP).

We don’t currently include those mastertrusts set up for advisers to market their own investment styles.

And we will never include any workplace pension that does not provide us with all the information we need to complete due diligence.

There is good reason for these exclusions. Choice has to be meaningful. Where the underlying governance, administration and at retirement processes are identical, we think the tweaking of investment options and member communications is little more than re-branding and we will not offer variants on a core proposition merely to put advisers into play.


Transparency in all things. does  not claim to be a definitive directory, but it offers a wider range of choice than any other service.

We are happy to share with the Regulator not just the methodology, but our fundamental research and the underlying ratings which we give providers.While much of this research is not ours- but the property of First Actuarial, we will share, with First Actuarial’s permission, our ratings with providers.

We publish a range of guides and research documents at which tell our customers how we do this.

We also publish our guide to how we apply our research which can be found here

Our directory is properly formulated and properly maintained, it is as inclusive as we can make it and we aim to ensure that an employer using our service (or the adviser) can present all meaningful choices that are available to it.


Meaningful choice at the right price

The current retail price for using our “choose a pension” service is £499 (+vat). This includes the support of either ourselves, or where we are working in partnership with an adviser such as First Actuarial, Alexander House or Abacus – our partners.

Where support is not provided, we have considerably less overhead, there may be scope to reduce our price where a client is self sufficient or where our service is embedded in a a holistic auto-enrolment service.

For employers, unused to having to pay upfront for financial services products – any price is initially a barrier (this is the pernicious legacy of a commission system that kidded employers that advice was for free).

However, as the numbers of employers choosing a pension increases and the capacity to introduce self-service increases, we believe that we will be able to reduce the cost of using our service substantially.


But auto-enrolment costs

The DWP and tPR have generally done a great job so far. Perhaps my one serious gripe is the publication early in the process of these numbers


The original cost assessments for staging auto-enrolment produced in 2012 by the DWP (above), created a false expectation not just to the Treasury but to their own civil servants that AE was pretty well for free.

It is not possible to set up the complex processes needed to implement and manage auto-enrolment, let alone research and select a proper workplace pension within these budgets.

Next steps for the Pension Regulator

When we meet the Regulator next week, we will be calling on them to research the actual costs of auto-enrolment , both in terms of internal management time and in the purchasing of outsourced services.

In particular, we would like tPR to work with us to scope what employers should be doing to choose a workplace pension. Once scoped, we’d like tPR to cost that process within a range of options , ranging from the belts and braces approach adopted by larger employers employing a manual process to the bare minimum acceptable standard (let’s say a properly researched view of the market culminating in a reason why letter made available to staff and employee representatives).

I challenge tPR to find any service that can put meaningful choice to an employer and document that choice and the decision taken, for less than five hundred pounds.

No short cut to best practice

I think we will look back at tPR’s decision as a tipping point in our progress towards national enrolment.

By rejecting the easy option of a Directory, tPR has put “informed choice” back on the agenda of smaller employers. But it is not enough for tPR to just wash its hands of pensions (it is the Pension Regulator), tPR must now insist on SMEs and micros choosing a pension for staff- or if delegating this responsibility to an adviser, having that choice made in an informed way.

The alternative will be for up to a million companies having workplace pensions which they know nothing about and many millions of staff investing in schemes that might as well have been purchased in a car-boot sale.

There is no short-cut to best practice.


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Ken Davy – you are a magnificent man – but we must move on!



I was entertained and amazed last night listening to Ken Davy talk about the likely impact of pension freedoms. I was saddened too, for Ken’s a man who represents the absolute integrity of advice in this country, and he is not happy.

His theme was mis-selling and he reminded us of the bitterness created between actuaries and financial advisers from the late eighties onwards.

There is a divide between advisers and actuaries that was created then and has still to be bridged. I first met Ken in the offices of the NAPF last year. He had never been into them, I felt I was never out of them. As we were taking Joanne Seagers walked past and we exchanged pleasantries, she looked at Ken and walked away. It remains an image that dwells in my memory and flashes to the front whenever I talk with trustees about advice.

The entrenched positions that have been taken are not helping us to move forward. We have a regulatory regime that has yet to move an inch to accommodate the desire of ordinary people to spend their defined benefits in their undefined way.

Understanding the objectives of ordinary people is simply not on the agenda of the FCA when it comes to the “guaranteed” benefits offered by occupational schemes. It remains the Transfer Value Analysis that governs the advisory process, not the wishes of those who are beneficiaries. Indeed, the member and the adviser are not even given access to a key document that should enable proper advice on risk to be given – the trustee’s assessment of the employer’s covenant.

I think Ken Davy a fantastic man, I could have listened to him talk all night (and nearly did). But he is wrong to be bitter, understandable as his bitterness is. Even though the treatment meeted out to advisers and their insurers as a result of mis-selling was disastrous  to independent financial advice, even though the restitution process was hopelessly unfair and allowed all kinds of arbitrage against adviser, we have to move on.

Trustees do not have it in for advisers nor should actuaries. I say “should” though I know that many actuaries remain obstinately prejudiced against or blindly ignorant of the value of advisers. Many, like Joanne, simply haven’t engaged and are consequently unwittingly part of the problem.

It is critically important that Ken and his gang and Joanne and her gang meet half way and that they work together to sort out the problems with transfers. While the two sides stay apart, it will be difficult to get the regulatory easements needed for people to make choices about staying or going from their occupational schemes.

You can shake a bottle of pop so hard but eventually the pressure will force the cap off, the resulting mess from pop and cork and broken glass is not what we want. What Mark Hoban calls “financial carnage” will ensue from our failing to bridge the divide.



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The long walk to pension freedom


Would you buy a house like this?

So why do so many people treat their pensions like they were buying a 12 pack of beer?

I wrote three blogs last week about the need for a Code of Good Practice for pension transfers.

The first suggest we take a more grown up attitude to risk both within and without a DB scheme

The second introduces the idea of a code of practice to improve the quality of advice

The third looks at transfers from an advisers perspective and asks whether (without a code), it’s worth an adviser getting involved

The idea came out of work I’m doing for the trustees and employers we work for at First Actuarial. Trustees are required to ensure that advice is taken on transfers 9over £30k in value) and employers , who would love to see the back of their pension liabilities are keen to help the trustees find people to do the job.

So what’s the big issue?

The problems’ that (according to Hargreaves) 8% of all in DB schemes want to look at a transfer to exercise Pension Freedoms. IFAs fear they aren’t skilful and knowledgeable and don’t want to advise. (And I suspect that their insurers won’t let many of them).

So we are in a bind with thousands wanting freedom, Government rules that demand advice (For transfers with a valid over £30k) and very little advice to go round.

The risk is, that without proper advice, many people will become insistent customers and transfer anyway.

Advice protects pensions

(A senior journalist picked up on this last night)

It’s campaigners like Angie Brooks and  IFA’s like Peter Pearce (@agedboyracer) that are needed. Responsible people who want to do the right thing by clients

Angie and Peter tweet “fraud”  because they are concerned that without action, the money that is transferred will find its way into scams.

If you read the blogs , you can see what a code of practice would need to cover.

  1. A proper understanding from adviser and client of the client’s financial objectives
  2. A proper understanding of risk of staying in and of transferring out
  3. An understanding of the value of the transfer relative to what is being given up.

As Alan Rubenstein said in the Telegraph a couple of Sundays ago, people need to be aware of the risks scheme deficits pose members as part of this process.

They need to understand that the transfer value is based on assumptions that may be quite different from what actually happens (in terms of inflation, market returns and longevity)

But most of all, people need to understand what their retirement is likely to look like in terms of financial needs- and organise their finances around it.

What needs to happen for progress to be made?

Any code would have to come from the bottom up (as happened with the code for ETVs organised by Margaret Snowden).

If it happened, it would need to happen around one of the proper IFA compliance service companies – and through the energy and good sense of someone like Phil Young  (@philyoung360)   at ThreeSixty Services.

It would need the blessing of the FCA ( Project Innovate) and the active support of trustees and employers and of course it would need to work.

My guess is that @rosaltmann @pensionsmonkey and @alanhigham would need to get behind such an idea. If you are on twitter, you should link to these people, if you’re not, they’re Ros Altmann, Alan Higham and Tom McPhail who between them have done a great deal for the over 55s.

For the code to work it would have to have the support of the Pension Regulator whose job is to protect the assets in occupational pension schemes .

And for a code of practice to work, we would need @TPASnews (TPAS) and @citizensadvice  to accept and promote it as part of Pension Wise.

Pension Wise

Without it , I see a lot of frustration from the stalemate. With it, we may get some sense in the market but there are risks in any event.

When an adviser has to say “no” and charges a customer who has paid hoping he says “yes” it hurts, a bit like paying for an IVF assessment only to be told you can never have a baby. Or paying for a structural survey only to find you can’t get a mortgage on the property.

Jobs for the boys?

Some will say that a code just promotes unnecessary advisory fees; I think they are wrong. A code of practice should make sure that if you get transfer advice you get value for your money.

You can spend a lifetime pounding away trying to get a baby, you can buy your house and find you can’t resell it. You can take a transfer signed off by a fraudster and lose your pension. Or you can do things properly.

Or getting it right?

There is a walk to pension freedom – it needn’t be that long if we can get advice right.


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When will we ever learn?



There are no short-cuts in pensions, there are no silver bullets, easy answers, no lottery wins, no free alpha. There’s just a lot of hard saving backed up by good governance , cost control and sound investment strategy.

Pete Seeger, the American folk singer, composed “Where have all the flowers gone” to express his fatigue at the cynicism of the America he had fought for in the Korean war. He ends the chorus with the refrain; “when will we ever learn”. If you’ve got 119 seconds free, listen to him sing it at the end of this blog.

Financial services seems condemned to repeating its mistakes. We have a capacity to dress the mistakes in different clothes but the mistake is the same. Until we design our products, our conduct and our attitude around our customers, we will find ourselves reversing up cul-de-sacs of our own making.

When will we ever learn?


Last week I had a number of conversations with people who have been entrusted to establish auto-enrolment programs for small employers. The people I talked to were accountants, the managers of payroll bureaux and the designers of auto-enrolment software.

The common assumption is that as long as the workplace pension integrates with payroll at the commencement of the process, everything will be alright (compliant).

One firm of accountants is adopting NEST as the default, another a vertically integrated master trust managed by a national IFA, another has no guidance for the employer other than to google workplace pensions.

When will we ever learn?


We have taken short-cuts  so many times. We did it with pension transfers, we did it with PPI  and now we are doing it with workplace pensions.

We forget that the money we are extracting from people’s pay packets is being invested for the financial futures of our nation’s workforce. They are consenting to this because they have been told, and they believe, that the investments will secure them a proper retirement. They are putting their trust in their employer to choose the right investment, for the provider to do the right thing and for Government to well – govern!

If an employee were to ask the boss how he chose the investment of a lifetime of contributions, what would you- the boss -say?

I took advice from my accountant who said…they’d spoke to the people who run our payroll and they said, they’d  spoken to some  financial advisers and they said…

They said what?

They said that if I couldn’t make up my mind, I should use the default- which is exactly what we did…

So you took advice?

Yes, we took the advice…

And where’s the record of that advice? 

We were assured that the workplace pension we were using complied with the Government’s qualifying rules, so we didn’t ask for reasons why they selected the pension they did.

I thought that you were selecting the pension?

Well technically yes, but we didn’t want to get involved in something we didn’t understand.

And now it’s gone wrong!

Well I know, and I’m having words with our accountants, and the are having words with the software suppliers they used and we are all having words with the financial adviser.

And what are they saying?

They’re blaming the Government.

I saw that program on the TV about this..

The one that said I could join the class action? You know what it means if that action succeeds?

I’ll get compensation?

You’ll get compensation but I’ll be paying the price in my insurance premiums and we’ll have to get new accountants and a new payroll.

You should have thought about that when you set this up

That was a long time ago and there were different managers then…

Yes, but I’m still working for you , and I’ve paid into this pension every month for 20 years

But we’ve learned from their mistakes and in future it’s going to be ok.

When will you ever learn?


Playpen home



Ladies and Gentlemen, it doesn’t have to be like this. For the cost of a new tyre on his Jag, your boss can choose the right pension , not just for his payroll, but for you.

If he chooses to spend a couple of hundred pounds, he can get the information he needs to take his decision, a full report on what and how he chose and a certificate signed by an actuary confirming that he has followed a process with due diligence.

Don’t settle for less, don’t take short-cuts and don’t risk your workers and your company’s future.


Now for that video!


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Pension transfers – are they worth it?


Britain is in great need of advice on transfers between one pension and another. This doesn’t just mean transfers from defined benefit schemes to defined contribution schemes, it means support in transferring pot to pot transfers for DC arrangements.

Unless you have a very small DB benefit, you will have to take regulated advice before you free up your benefits, insurance companies are writing to customers looking to move their pots warning of potential risks and urging they take a similar course of action.

In this article I outline the bind that we are getting ourselves into as we collectively ask

“pension transfers – are they worth it”


The value of a transfer

There are a number of objective people may have for wanting to shift money. For instance

  1. Performance – they think their money will work harder for them and provide more for them in the future
  2. Guarantees- people do not want the guarantees they have been offered (or aren’t prepared to pay their price
  3. Freedom- people want to spend their money in retirement how they like and not have a pattern of payments imposed on them
  4. Control – some people are uncomfortable with others managing their money and want to have day to day control of its management
  5. Debt, the immediate need to release a person or a family from debt may mean swapping future security for a way out of a crisis

These objectives are collectively the value of the transfer

I am sure there are many other objectives that people have for bringing their savings together , though if one Lamborghini is actually purchased from aggregation, I would be surprised (cue one reader sending me their pre-order form!).


None of these objectives makes it right to transfer. But the point of pension freedoms is that it puts people’s objectives back at the top of the agenda, it’s no longer what fiduciaries think is right that matters most, in the end it is what people think is right for them.

People want some light in the darkness.

lux in tenebris

lux in tenebris

I we freedom and choice, let’s make sure the choices are informed.

Before pressing the transfer button, people have a right to know what is being given up as well as what is being gained. When people were last encouraged to transfer like this, it was in the late eighties and nineties when the introduction of personal pensions was seen as a reason in itself to transfer.

Many people were advised to transfer because they could. The net result was a massive restitution program that cost personal pension providers and advisers a fortune and tainted the reputation of pensions for decades.


The cost of a transfer



For most people, the value of a transfer needs to be weighed against the cost of a transfer.

The cost of the transfer is more easily measurable than the value but it is still partially a subjective measure. For instance, it’s a matter of opinion whether one fund will produce more money than another, that the security of one promise is higher than another or that the transfer value is a fair reflection of the benefit given up.

Of course there are objective measures; we can estimated transition costs with reference to those incurred from other transfers and if we have proper information (IA pleas note) we can assess the value for money of one fund over another in terms of returns achieved against costs incurred.

But a risk assessment made about someone’s own money is bound to be subjective, and it’s considerably harder to make a decision on your own money than it is on other people’s money, because this decision affects your and your family’s future – possibly for decades to come.


Value for money

value of something

The formulations for value and for cost are fiendishly difficult and questions like “is it worth it?” cannot always be answered with a yes or no, there are too many “it depends” clauses that need to be inserted along the road to a decision.

Value for advice?


For advisers, the “is it worth it?” question is almost as hard. The value is in the fee that can be secured (or the income stream from funds under management) plus the value of helping a client out- in terms of relationship management. But the cost of getting it wrong, in terms of fines, restitution and reputational damage is high.

This week we have heard a number of IFAs and IFA groups stating publicly that they will not give transfer advice. In the same week, I hear that

” market research conducted earlier this month by Hargreaves Lansdown suggests that about 500,000 of the 6.8 million DB scheme members in the UK plan to transfer their money to DC schemes following the introduction of pensions freedoms – about 8% of the total.” – Professional Adviser

Neil MacGillivray, who’s head of technical support at James Hay told a conference that if IFAs do not advise, the way is clear for the fraudsters. 


The Bind


We are in a bind here; 8% of people in DB schemes (and many more with legacy DC benefits) are looking for advice on whether transferring from the DB scheme towards “pension freedom” adds sufficient value  for the cost involved.

But advisers will not advise or will only advise at a cost which most people will not entertain.



When we get to such a stand-off, there needs to be some intercession, either from the top or from the bottom (or both). It could be possible for the boffins in Canary Wharf to construct a new section of the COBs rule book, consult on it and enforce it. But this process would take a very long time and runs the risk of being over-engineered and unwieldy.

The bottom up approach involves advisers, with the help of someone who wears a collective compliance hat for advisers, going to the FCA with a code of practice , constructed by advisers under which advisers would be able to support individuals make decisions without fear of recrimination. By recrimination, I mean both civil or regulatory litigation.

What that solution looks like in detail is not for these pages. I’ve described  the three legged stool , with client objectives, a credit risk assessment and a transfer analysis in a recent blog.

A code of good practice looks like the basis of an “is it worth it?” discussion that can lead to somebody taking an informed choice.

But as a bottom up solution, perhaps organised around Threesixty , such a code could not in itself provide protection. It would need to be tested by the FCA and approved. I am interested in the FCA’s Innovation Hub and how it can be used to help this problem.


More questions than answers

For the trustees of occupational pension schemes and the IGCs of insurance companies the issues are broadly the same, is it better for the members they represent to exercise their freedoms and move to good or is it better to stay put (the devil you know). They cannot advise their members other than to recommend Pension Wise

Pension Wise


Pension Wise cannot give advice and can only recommend taking financial advice. So the Bind extends beyond the individual and the adviser and encompasses employers and trustees, Pension Wise and ultimately the people who set these Pension Freedoms up.

For all the talk of “second line of defence” there is no obvious answer to the question “is it worth it”. In this, as in so much else, only leadership will see us through.


Call to action


I hope that  you will feel you would like to be involved, whether as a member, employer,trustee, regulator or advisor. If so, please drop me a line on I already have many such emails (thanks to all who wrote this week).

I promise to run with this till I can pass the baton to someone or some people better fitted to taking it on.


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A code of good practice for transfer advice?


lauren-characterWe are rubbish at financial risk and we know it. We take decisions on financial matters with as much confidence as betting on the horses and if our horse falls at the first we blame everyone but ourselves!

Small wonder that many financial advisers look to de-risking their businesses as discretionary fund managers or their agents. Exposure to something going wrong is limited and payment is certain.

At the other end of the risk spectrum are advisers helping people with the really difficult choices that surround guarantees.

I spent some of yesterday with Phil Young who manages a compliance service for financial advisers known as 360. We talked about the need people have to understand the risk within their “guaranteed” products and how little we explain what the market calls “credit risk”, the risk of guarantees being broken.

Phil is very smart about priorities and taught me something that I once knew and have since forgotten. Good advisers understand people’s objectives, I’d go further and the best advisers get their clients to understand their objectives. What a client wants and needs are of course different things and part of the job of a financial adviser is to help people prioritise their needs, often deferring immediate gratification and insuring against future peril.

The degree of certainty needed to achieve long term goals varies from person to person, some can afford to take risk and some like to take risk and some are risk averse to the extent that risk can physically make them sick. So financial objectives involve understanding what can realistically be expected from the structuring of retirement savings.

It is clear that most people want a replacement income in retirement , but it is not certain they want that income to be guaranteed. If the income is guaranteed, how good is that guarantee. In yesterday’s blog I looked at ways of incorporating risk analysis to get a simple measure for how likely a pension fund was to meet its obligations, make every payment to you as agreed.

If someone’s financial objectives are top of the ladder in considering “what to do” about planning retirement income, risk must be second.

A simple yes/no/maybe answer using a transfer value analysis system which does not take into account someone’s objectives and a total understanding of risk, is an insufficient basis on which to take a decision.

And yet much analysis we see focus on finger in the air projections which rely heavily on fund recommendations. The reliance on silver bullets from fund picking is a subtle risk transfer from the adviser to the fund manager and beyond that to markets.

Similarly a simple yes/no/maybe answer using a transfer value analysis system is

One learned actuarial friend explained the reason for active funds was to give trustees someone to blame when he screwed up. Blaming fund managers for not meeting the targets set by actuaries or advisers is second only to the old chestnut “irrational markets”.

To return to my racing analogy, and we are only weeks from Cheltenham, when a horse falls, blame the jockey, the trainer even the horse, but never blame yourself for backing it!

I want to see more advisers advising people about their objectives and the risks they are taking meeting them, whether those risks are not saving, or insuring or simply taking too much or too little risk in their investments , for their risk appetite.

Phil and I agreed to work to a common goal to make this happen in one area of the market we see as particularly in need of improvement, the provision of advice to people on whether to exchange defined benefit pension rights for rights that could be more secure (annuities or state pension ) or less secure, drawdown- or thinking ahead – CDC.

We didn’t have a silver bullet but we discussed the work of Princess Margaret Snowden OBE and what she has done to create a code for benefit consultants managing enhanced transfer projects; we agreed that what is needed is a code of conduct within which advisers can advise with a degree of certainty and without the risk of regulatory or client litigation.

Fundamental to our conversation was our agreement that what is good for a client must be good for an adviser- not the other way round.

Trustees of occupational pension schemes need good advice to be given to members about risk, especially when coming to the point when they exercise the new pension freedoms.

Those who advise trustees and those who advise members spend too little time talking to each other. Phil and I agreed to talk more.

I’d be pleased to hear from anyone who would be interested in joining us in looking at what a code of good practice for transfer advice could look like.


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Why DB pension promises may need a credit rating.

credit granny

How do you rate the creditworthiness of your scheme’s funding?

Trustees of defined benefit schemes now have to properly assess the employer’s ability (and willingness) to fund the promises made to the members of the scheme. The assessment helps them in negotiations with the employer on funding issues and (typically) the recovery plan put into place when there is not deemed to be enough money in the DB pot to meet the promises made to all the members.

This assessment can be expensive to get,  the costs are passed on to an employer but the information stays with the trustees.

Much of the information in the assessment may be sensitive as a good assessment probes into the risks the employer is running and the challenges ahead.

Understandably, employers who may already  be aggrieved by having to pay to expose their dirty linen to the trustees, may be even more reluctant to share this information with pension scheme members and their financial advisers.

It may be in the employer’s interests to expose its dirty linen.

But it may be in their best interests to allow members of their defined benefit scheme, paradoxically, especially when the assessment is that the employer’s covenant is weak

Let me explain;

A weak covenant means that the employer may have trouble paying its pension promise to the fund, unless the fund gets lucky on investments or the outlook for interest rates improves (the measure that governs the measurement of liabilities) it may be that the pension scheme may stay underfunded and one day go into the pension protection fund (PPF)

For many people, the  PPF may not be that bad news, people with small benefits may not lose out; but members with bigger benefits stand to see their pension promise clipped by as much as a quarter if their pension scheme has to be bailed out.

If people knew that there was a significant risk of losing part of their pension, they might be more inclined to take a transfer value, even were it to be a tad stingey,

And this might suit the employer very well, since the kind of people who bother to look into these things with their advisers are the kind of people who have sizeable chunks of a DB scheme’s liabilities.

The transfer value takes these liabilities off the books, often at considerably less cost than the book value of the member’s benefits.

To understand this last bit, you will have to investigate the arcane valuation system of a pension scheme which can be carried out on a number of basis. As all the basis’ produce different results, a trustee can use one valuation basis to calculate transfer values and another to value the members benefits when asking for funds from the employer,

I am not an actuary (does nobody listen?) and I don’t want to go into why all this is, but let us just say that it may be in both the member’s interests and the interest of the Pension Scheme, that the member goes his or her separate way.

So airing your dirty laundry to your staff might just make sense. It may be embarrassing and it may not be something you want suppliers and customers to know, but sometimes it pays to be honest and transparent.


And no employee should be anything but grateful for this information.

I cannot think of any other asset of comparable value to a pension promise that we know so little about. Imagine owning a corporate bond and not being offered a credit rating, or buying a house and not being able to see a structural survey.

A pension promise is only as good as the promise that backs it up, and if the employer’s covenant is junk, then the Transfer value may be very good value indeed.

Working out a credit score is hard , but understanding it is easy.


credit score



How Alan Rubenstein can help!

In his article in the Telegraph over the weekend which you can read via this link, Alan Rubenstein, the boss at the PPF, suggests that members of pension funds should be asking the difficult questions about the quality of the support employers can give to the pension promised.

For the PPF, who want to see greater solvency in DB pension schemes, the de-risking of those schemes by members voluntarily taking transfer values, is a good thing. For trustees, it improves security for the remaining members. For employers it gives welcome relief from pension pressure on the balance sheet.

For members the availability of a covenant assessment and/or a PPF rating is wothwhile information, with the assistance of a trained adviser (or a personal understanding of credit), that information can be turned to  knowledge.

Perhaps DB members should be asking Alan a question.

“If DB scheme’s are risk-assessed by the PPF, why doesn’t the PPF make those ratings available to scheme members?”

Posted in de-risking, defined ambition, Pension Freedoms, pension playpen, pensions, Pensions Regulator | Tagged , , , , , , , , , , , , , , , , | Leave a comment

Let’s talk about risk – trustees, let’s talk about you and me..


Talk Risk

The Telegraph has published an excellent article on the risks of you not getting your full pension from a defined benefit pension scheme. In it, Alan Rubenstein who is in charge of the Government Lifeboat for schemes that go bust (the Pension Protection Fund) says

“It is misleading to allow people to expect promised pensions when in fact there is only money enough to pay about 60 per cent of those pensions [should they be cashed in today] and where nothing is being done about the shortfall.”

He is absolutely right, there are a small number of these schemes that are falling further and further behind the run-rate. Some will have to score at the equivalent of ten an over and some of the employers have too many wickets down. Unless there is a miracle partnership from numbers 10 and 11, many schemes will be all out.

deficit levels

Today DB pension schemes can only afford to pay on average 80% of the pension


The situation looks particularly dire at this moment. We had expected to see an interest rate rise (at least on the horizon) but instead the long term prospect for rates remains super-low, while this is good news for borrowers, it is bad news for savers. Annuity rates remain super-low and the cost of paying pensions super-high.

Put this in a cocktail shaker with sluggish stock-markets and you get a very hefty annual bill presented by the actuary to meet the shortfall between what he or she estimates is needed to pay all future pensions and what is in the pot.

This bill is simply too much for some organisations. The prospects of these bills for years to come (known as the recovery plan) proves too much for those who finance these companies and the employer is forced into administration.

coins falling

The Pension Scheme is pre-packed and enters the PPF after a bit of too-ing and fro-ing.

Those most vulnerable, typically the pensioners with no capacity to get income elsewhere get pensions in full, those with bigger benefits awaiting payment are likely to take a pension cut. In the end the PPF bails out the basket cases and were that to happen too often, the tax-payer would bail out the PPF.


The PPF is a lifeboat not a cruise liner


This is all very good and  a whole lot better than the bad old days where schemes that went bust (like Allied Steel and Wire) paid nothing to people who most needed every penny they were due. It’s thanks to people like Andy Young @andyjags who designed the thing, Steve Webb who oversees it and Alan Rubenstein who manages the thing, that the PPF has done its job (in very difficult circumstances).

This is not alarmist- this is responsible Government

Alan Rubenstein is being accused of being alarmist- but I think he is being extremely responsible. He is drawing attention to an unpleasant fact, that not only are some schemes technically bust, but many people are making their plans  around these schemes paying out in full.

Employers who are failing to put in place proper recovery plans or who are failing to meet the payment schedules need to be having a conversation with staff which talks about some harsh but unpleasant choices. These might include

  • Choose whether you want a pay cut now or for your entire retirement.
  • Choose whether you want this company to stay in business or your pension promise to remain intact
  • Choose whether you want to be part of the problem or a part of the solution.

A couple of years ago, some very able people had these conversations with the members of the Kodak pension scheme. Kodak was bust and so was the pension scheme. In the end Kodak continued to trade but the company became the property of the pension scheme. Kodak employees are working for their pensioners and those who are retiring today will have their younger colleagues working for them.

There are no silver bullets that shouldn’t make people helpless

I am quoted in the article as saying there is no silver bullet that is going to sort this problem out. Putting the pension fund under the mattress (and into cash) will drive up the cost of the Recovery Plan, investing in risky assets is playing double or quits.

talk risk 2

I wanted to agree with Alan Rubenstein that we cannot be complacent about these pension deficits.

If I’d had more than 5 seconds preparation for my call I would have made asked the Telegraph to consider what people in defined benefit schemes (whether they still work for the employer or not) – can do.

( Note to Telegraph -I’m no actuary- working for First Actuarial doesn’t make me an actuary, working as the convent handyman wouldn’t make me a nun).

So what can people who have rights in a pension scheme do?

  1. Find out who the trustees of the scheme are by contacting the employer.
  2. Contact the Chair and suggest that the trustees make a statement to members about the funding position of the scheme
  3. If you are not comfortable with that statement ask that a meeting for those to be impacted be arranged with members of the scheme.
  4. If necessary, get involved, this may not just be the employer’s problem
  5. Be tolerant, however worried you may be, throwing rocks is not going to make this better,

Well done to Alan Rubenstein for saying it like it is, well done to the Telegraph for publishing. This should not be a debate about whether people should take transfers from DB schemes (as rats from sinking ships). It should be a debate about risk sharing and how fair solutions can be found to intractable problems.

If the run rate is 10 an over and we have 9 wickets down even the rain and  Duckworth Lewis won’t save you! The best you can do is to ensure that the impact of the defeat is minimised and that the team live to fight another day.

With Pension Freedoms around the corner, Trustees cannot duck this conversation. Members cannot take exercise freedoms on pensions in payment so the decision to draw a DB pension is as irreversible as buying an annuity. Trustees need to make their members knowledgeable about their options.

talk risk 3



As a postscript, I notice that Alan has published some clarifications which are posted on Jo Cumbo’s twitter time line.







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Why it’s harder to get knowledge than information



Digital Guidance supports people taking tough decisions but it cannot take those decisions for them.

Even when a decision is taken not to do something – like not to choose an investment strategy or pay voluntary contributions, people feel guilty pressing “next“!

Faced with impossible decisions people tend to give up and turn off the computer-  or go and do something on Facebook

People make choices based on what they want in life but they hate taking decisions about financial products.

This is one of the reasons opt-out rates are so low. The decision to opt-out is far too difficult; and without it being framed properly, the question is seldom properly considered.

So if I would ask you,

“which would you prefer, go to the cinema tonight or put a tenner in your pension?”

…you’d probably take the cinema option,  but if I framed it,

“I’m taking a tenner from your pay so you can have a proper retirement unless you insist on going to the cinema tonight”

you’d probably say –

“oh go on then”.

But if I told you,

“I’ve been taking a tenner a day out of your salary for the past ten years and (ha ha) you never noticed and now you’ve got a shed load of money for the rest of your life”

I bet you’d say,

“Thanks very much”

If the point of financial education is to encourage participation, in the words of the song “you say it best, when you say nothing at all”.

But good employers want more than a low opt-out rate, they want people to engage with the pension scheme and make positive choices that make a real difference to their later lives.

“Saying nothing at all” is not the way to do that!

When the choice is binary “in/out” “default/choose” “save/don’t save”, then people can be nudged into the no-brainers – in –default – save.

But when the choice is between a certain (but limited) income and a fat wedge of cash in the bank, engagement is critical – critical to getting people knowledgeable about what these choices mean.

When done well, digital guidance can “narrow” choices and link those choices to differing outcomes. This enables people to feel comfortable that it is not a financial product they are choosing, but the outcome from using that product.

For instance, investing in a conventional lifestyle program can be framed as

” taking the guessing out of when to buy your pension”,

or even

“making it easier to spend your savings”.

It should not be about

“choosing gilts and cash over equities to deliver an optimal flight-path”.

In the context of the need for an emotional response to the choices on offer, we can better understand why “people buy people”. Digital guidance is pretty good to get people from B to C but the “A to B” needs the personal touch.

Before people are going to download the app or log on to the website, there needs to be a spark.

Whether that spark is generated around the water cooler or through a formal seminar, it is unlikely that it will happen without a conversation.

Most people download the apps they use for daily living through recommendation. I downloaded an app yesterday to help me track London busses because I saw someone use it. Interest in technology has to start with a conversation.

This matters particularly for financial education delivered in the workplace.

The reason to run a face to face financial education program is to start that conversations. So it’s critical that the education program promotes the digital guidance available to members.

Whether it be an app, or a website – whether delivery be via text, spread sheet or video, financial education must reference what is available elsewhere and make sense of the employee journey to making the choice.

Which is why preparation is so important. A Financial Education program must be properly integrated into the employer’s communication strategy and not be “free-standing”.

Likewise, digital guidance, no matter how good it may be, is useless without engagement.

The key for the employer is to ensure that whoever delivers group sessions is able to properly explain how the employee journey works and how –with or without digital assistance – members can translate tough decisions into easy choices.

We generally have more information than we cope with, we need people to help us convert some of that information into knowledge.

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

Let my money go!



I woke up to news that the Pension Play Pen RBS bank account can now be accessed by my iphone using fingertip security. Apparently mobile technology has outwitted clunky old pc technology which makes my thumb all that stands between us and a good time.

This is good news for those looking to enjoy  Cheltenham Festival Freedoms  on March 10th but won’t give much merriment to people like me , hoping that the pensions industry would be providing people with pension bank accounts from April 6th.



“Oh good” , I thought.when George Osborne announced that people would be free to draw their pension savings as they liked, “this will mean insurers, third party administrators and SIPP providers will wake up to the 21st century”.

I naively thought that instead of sitting on their hands, as they have done ever since 1987 when personal pensions “set us free”, that we would start giving people what they want, instant access to their money when they reach a certain age.

I now look at 55 as 53 year old as I looked at 18 as a 16 year old, as a time when a whole shedload of freedoms will be visited upon me. It is not the reality of a Lamborghini but the dream of one -or at least the chance to see a positive balance when I thumb my iphone, that makes me smiley.

But having smiley customers is clearly not one of the core values of our financial service partners on whom we rely for the delivery of such freedoms. Far from opening the doors, up go the shutters and we now have a pensions Maginot line – the second line of defence -to protect ourselves. Over protection rarely results arousal.


I am not a behavioural scientist, but I have witnessed everyone from my children to my grandparents frustrated by the dangling carrot they never quite can reach. Offer me the opportunity of taking my money when I want, letting me imagine the button that says “withdraw now” and a big number after it and I feel happy, secure – fulfilled.

I may not , indeed I will not blow it all at once, I just want you to – well – show me my money!

This is not the same as showing me a unit holding and a notional amount that is sitting in some fund I do not understand. Pension Freedom is not playing with stochastic models that show me when my money is likely to run out depending on 50 shades of economic theory. All of these things I can do later.

“We are drowning in information but starved for knowledge”

~ John Naisbitt

When you get to the seaside, you don’t want to do a tour of the town , or of your B&B, you want to see the sea. The sea is the one tangible certainty of the seaside, all the rest-even the sandy beach is incidental.

So when I finally access my pension account , I don’t want a piece of paper describing a process and setting out settlement terms, I want a button I can press that lets me at my money.


So come on everyone, stop treating us as idiots, there is a button that stops the train between stations but no-one presses it. There is a button on this laptop that could wipe the hard drive, but I’m not going to press it. The sea might drown me, but I’m not going to let it.

The technology exists to let me access my pension as I want to, it exists for the banks through thumb recognition on an i-phone.  7,10, 14 days settlement periods leading to a cheque in the post is not freedom, sending birth and marriage certificates, passports and utility bills via recorded delivery is not freedom.

Freedom is the capacity to do whatever you want to do, and knowing you will almost certainly do the right thing – the right thing by you.

Posted in advice gap, Pension Freedoms, pension playpen, pensions | Tagged , , , , , , , , | 2 Comments

The pernicious power of financial advertising

Financial advertising

The incendiary resignation letter from Peter Oborne cites the removal of articles from the Telegraph’s website , claiming the articles went because of pressure from HSBC as a major advertiser.

Buzzfeed have the story (and the article( here).

I know nothing of HSBC (other than I bank with them and that First Direct is a model of probity), but I know a lot about the pernicious power of financial advertising.

The greater the dependency of an organisation on advertising revenues, the harder it is to remain independent. This goes not just for on the page (including webpage) advertising but the more subtle sponsorship of events and even education.

What starts out as an altruistic venture, quickly turns into a search for “ROI” as advertisers seek a return on the investment. Necessarily there are conflicts between what is good for the advertiser and what is best for the reader/member even pupil.

The dead hand of advertising impacts on the great pension debates we are having. The vested interests with the weight of advertising behind them stifle and distort debate. Few organisations can rise above the “they would say that” test!

This works at a personal as well as a strategic level.

It is so hard to maintain editorial independence when your bonus or the very funding of your job is dependent on the ongoing support of the organisation that you are exposing. Which is why (whether there is substance to these allegations or not), I instinctively side with Peter Oborne.

For it’s first 12 months, when its transactional revenues have not been sufficient to match development costs, my own venture, has benefited from revenues from NOW and Legal & General and ITM. I hope those organisations benefit from this advertising but they know very well that I will not promote their product because of their advertising.

I have been very impressed by Legal & General, especially since they have moved their investment and workplace pension teams into one. I continue to be impressed by NOW but have been critical of some aspects of their proposition both on my blog and in the pension press. ITM’s middleware has never been directly promoted as part of our solution.

I know how hard it is to remain independent and my thanks to my advertisers is for their understanding that the value of our service is nothing if we are anything less.

The big loser in Peter Oborne’s resignation will not be HSBC, the stories about their inadequate accounting remain on other influential websites, it is the Telegraph.  But by association, financial advertising in general, which when it sits alongside editorial or conferences or “educational” programs, inevitably compromises.

Looking around my flat, I can see a pen from OPDU, a notebook from JLT , even a plastic piggybank from Hampshire County Council.  My rucksack is emblazoned with a NOW logo. I am a tart for tat!

But the inducements rule, that my company follows scrupulously , recognises that the greatest care needs to be taken in attending conferences, or educational courses , even reading articles which (by dint of surrounding articles) may become advertorial. is now advertising free, as is this blog, as is the I have to pay to have the ads removed from here!

We may take more advertising but those advertisers know that it will not purchase a blind eye to imperfections. Nor will it lead to sponsored articles where the words of the Pension Plowman are written by those paying him.

The bravest and best advertisers are those who continue to support a venture through thick and thin (witness Morten Nilsson’s stoical response to criticism of his service which you can now find at the bottom of yesterday’s blog).

In the short term , advertising can achieve a return on investment by obstructing editorial independence, but in the longer term, the divide between the editors desk and those in marketing must be scrupulously maintained.

There are no short-cuts for independence.

Ironically, the product that has most value on my sites is independence. Organisations that want to buy into this commodity can do so knowing that they will be treated in exactly the same way whether they pay us money or not.

If you want to associate yourself with our high standards, then we’re happy to take your money as it allows us to develop faster and improve the buying experience for others. It will also allow us all to eventually get paid for this endeavour.

So here’s a bit of free advertising for those who have stuck with us, we’re grateful to you , but we’re not in your debt!





Posted in advice gap, auto-enrolment, First Actuarial, Pension Freedoms, pension playpen, pensions | Tagged , , , , , , , , , , , | 2 Comments

It’s only human nature after all!



It’s natural for us to crave money but we are not natural money saving experts. Debate has raged on this blog and on the Pension Play Pen group pages as to whether Pensions Wise is doomed along with the financial education agenda.

For those with an eye to the “most vulnerable” as our masters refer to the poor, the idea of a pension dashboard is ludicrous, the difference between a good and bad week may come down to whether there is a pound coin left on Sunday to feed into the meter. Universal credit (formally introduced today) presents a budgeting nightmare to those for whom week by week cashflow management is “financial planning”.

Not surprising that there is such national outrage at the failure of our tax authorities and our leading commercial bank to prevent or investigate the theft from the Treasury of millions of tax payers pounds that could and should have been shared through society. We live in a tolerant country, if we didn’t, then rocks would have been thrown.


With these sharp divisions between the richest and the poorest, we forget those in the middle who want to become money saving experts , have been offered pension freedoms but are frustrated by the state of change.

I am one of those people, but I’m in the fortunate position of having access to technology and people to apply that technology to educate and empower people to manage their finances more effectively.

One person who I hope I can build a relationship with over the next few years in Mark Hoban who, having been a Treasury Minister, is resigning from parliament to pursue a private career. If you think this man is just out to cash in on former glories you a) haven’t met him and b) haven’t read his pamphlet “RetirementSaverService” (RSS) published by Reform last month.

Pension Wise

Mark’s vision is of a second line of support (Pensions Wise being the first) that can be offered to ordinary people who want to know what they’ve got when they get in their 50s  and 60s and what they can do with it. There are two key elements to this support

  • Creating a single view of someone’s pension savings, state pensions and other assets, and
  • Developing a digital guidance service.

The biggest barrier to doing this, in his opinion is regulatory. In this he and I are one. I’m encouraged that the FCA are addressing this issue, particularly encouraged that they have established “Project Innovate” which (among other things) aims

to identify areas where our regulatory framework needs to adapt to enable further innovation in the interests of consumers.

I intend to use this support from the Regulator as my firm increases digital guidance not just to employers (choosing workplace pensions) but to those wanting to help their staff take financial decisions in the workplace.

Increasingly, employers are seeing the place of work as one where people can focus on managing their money. Employers recognise that employees are more productive when they are solvent and even more productive when they are working towards clear financial goals. Providing people with financial guidance in the workplace is something that many employers want to do.

This is how Government and Financial Services organisations can work together to make the most of the new freedoms. The freedoms are nothing if we don’t know how to or are prevented from using them.

For many people, the idea of viewing their money on a pensions dashboard and “narrowing” choices by means of digital guidance will be exciting, to many it won’t.

At those who can’t or won’t manage their own retirement incomes, we should not be pointing fingers. Most people would rather do other things;- it is only human nature after all. For many people, packaged solutions such as annuities (and CDC) which deliver greater certainty (albeit with less flexibility) are the obvious alternatives.

So just as we need to build the dashboards and digital guidance services, we also need to build new ways to drawdown our retirement savings. This is why we have a defined ambition program which picks up the slack.

Posted in Financial Education, First Actuarial, Pension Freedoms, pension playpen, pensions | Tagged , , , , , , , , | 4 Comments

How Payroll can avoid offering pension advice (in 5 easy lessons)!

Pension information

The blog in a nutshell

This is a long risk-warning to payroll bureau and their software suppliers  who may be considering providing advice to employers by reducing the choice of pension options to one – a default.

If you don’t want to read it but want my advice upfront – here it is

  1. Do not short-cut advice on the choice of workplace pensions
  2. Use someone with skill and knowledge if you don’t have skill and knowledge yourself
  3. If no such person exists, find a digital guidance service that will take the advisory risk
  4. Pay money for this service, if it looks too good to be true, it is probably A SCAM!
  5. If you cannot find a way to sort this problem for yourselves go to


Interested? read on!


I am hearing some odd stories from payroll managers using including this comment I came across on a CIPP board.

Has anyone in a bureau situation decided to adopt a default AE pension scheme? What would be the line between advice and providing the service. A TPR representative spoke to us this week and brought up the idea of a ‘default’ pension scheme.

I was planning on veering away from any suggestions as to a scheme employers should use as I don’t want to fall foul of any regulatory authorities.

I asked Kate Upcraft who lectures on payroll for  her take on this; her reply

most of the bureaus I work with are either taking all comers but then working out a price for the client if it is a new interface to be developed or saying here are a stable we already do business with if you want to use them for our entry price or pay more if it is a new one on us.

Payroll are between a rock and a hard place and need some help. We need a common data standard.

PAPDIS and Pensions BIB

If  this is the new reality for SMEs and Micros, we not only need a common data standard, we need those providers who are currently deemed “new interfaces” to adopt it.

That means some of the household names such as Aviva, Royal London, L&G and Standard Life who risk being priced out of the market by payrolls who cannot afford to set up bespoke interfaces for their clients to use them.

As it stands, it is only a handful of mastertrusts who have developed the capacity to adopt the common data standard but the outstanding work of Will Lovegrove and SystemSync with the support of the Pension Regulator , Steve Webb , the friends of auto-enrolment and the CIPP, PAPDIS has the capacity to keep choice in the market.

Pensions BIB have created a tool in PAPDIS which we should all support!

If you don’t know about PAPDIS, read this excellent article by the CIPP and the video from Friendly Pensions (a PAPDIS user)

Pensions BIB?

Pensions BIB?

Auto-enrolment in the long-term is about pension outcomes

I very much hope that the report that the Regulator is suggesting bureaus adopt defaults is wrong. It goes against the Regulators own attempts to encourage choice, both in its work to set up a data standard and in its attempts to set up a Directory (however flawed they may be).

Auto-enrolment is a process, but workplace pensions are investments. They are investments of the money of ordinary people who consent to have money deducted from their wages for their long-term benefit. They are also investments made by employers who share the burden of contributions. The results of the decisions made today, won’t be available for up to 40 years but (read the end of this article) payroll may find advice given in 2015 still haunting them in 2055.

You heard it here first

You heard it here first

It is not just a crystal ball – it is possible to tell good pensions from bad

No one knows which of the various schemes on offer to employers today, will do best for its members.

  • But it is clear that some are more likely to offer better investment returns than others.
  • that some will provide better options for people wanting to spend their pot than others…
  • that some will provide more support to employers’ payroll and HR systems than others
  • that some will last longer than others

And there are some very good ways to assess who are likely to be winners and who losers

  • Some have a sustainable business model that reduces the risk of them having to pack it in over time
  • Some have a clear strategy, or are working to one, to adopt the pension freedoms
  • Some have proper investment governance in place and a clearly reasoned default
  • Some have adopted PAPDIS or assisted payroll to build links to them.
  • Some help employers with communications

and some don’t.

Both the FCA and the Pension Regulator agree about the nature of regulation




but the Pension Regulator makes it equally clear that skill and knowledge of pensions is needed for a recommendation be made

Skill and knowledge needed

But to understand which are doing the right things and which aren’t takes “skill and knowledge” and a system that allows employers to assess the workplace pension for their staff.

This is something that a consumer would normally find help with from a number of sources

  • the consumer could search on money saving expert
  • the consumer could go the library and consult past copies of Which (or use its website)
  • the consumer could go to a shop and look at the products on display.
  • the consumer could ask friends what they did and how they found it

From this kind of research, an everyday shoppers could make an informed choice.

But there are barriers to small businesses doing any of this.

  • workplace pension are not  toasters or credit cards and don’t appear in Which Surveys (yet)
  • they cannot be measured for success in the short-term, they are long-term investments; which is why MSE does not currently rate them
  • they cannot be displayed in a shop , nor do they lend themselves to glossy brochures
  • nor is there (yet) any common database of knowledge to which the employer can refer (as they could when buying a toaster or credit card)

But let us not give up hope!

The employers would, were it “no skin off their nose” sooner choose a good pension than a bad…if only to stop complaints from staff. If employers were aware of the class actions that happen against them in other parts of the developed world, they might see choosing a pension as an important duty.

And it is not impossible to build a system that allows employers to compare and contrast the offers made to them using digital guidance.

And it is not impossible that such guidance could be made available at a cost that could be justified many times over in terms of risk reduction and “value add”.


Digital guidance is the only way to deliver skill and knowledge at an affordable price

Indeed, as any reader of these blogs knows, such a system exists and is being used by many bureaus, employers, accountants and advisers.

It’s being used because it outsources the risk of the adviser being sued for incompetence, or straying into regulated territory and falling foul of the Financial Services and Market Act.

It’s also being used because the cost of providing a fully compliant advisory service that is inclusive of all reputable pension options . provides proper direction and fully documents the scheme chosen, cannot be delivered manually at a price most SMEs and micros can afford.

Indeed many forward thinking advisers, who until recently were offering a manual service, are now adopting the digital technology available through


Why Pension PlayPen supports PAPDIS

But for the moment, it is incumbent on us to make it clear to those who are providing the software for bureau, to those who run bureau and to the pension providers, that we urgently need to adopt the PAPDIS standard. will be upgrading the scores for all providers who use PAPDIS (and downgrading those that do not)

A default is not a safe-haven, it will be seen as a recommended course of action- advice.

So we need to ensure that the bureaus who may be being nudged into adopting default pension providers do not do so (I am writing to the Regulator- to ensure this is not happening).

For there is nothing so risky for those who know nothing about pensions, as to suggest a pension as a safe haven.


No safe haven and no short-cut.

I’ll finish with one very frightening example of the ruin can be brought about by short-circuiting proper governance and providing advice without proper regard to risks.



APFA,  the Association of Professional Financial Advisers , is currently campaigning to get a long-stop in place which will stop their members being sued for events that occurred decades before. Read this article to understand how advisers who did not do the job properly and are now in their 80s are being hounded by policyholders and regulators for advice that may have been given 40 years ago.

The long term consequences of the advice we give, even if it is no more than a default position, will hang around and are financially toxic for decades.


Posted in pensions, Pensions Regulator | Tagged , , , , , , , , , , , , , , , | 2 Comments

My missus!

Stella 001


My missus’ called Stella and, it being St Valentine’s day, I thought I’d say something about her.

We met, nearly 15 years ago, in Ronnie Scotts in Birmingham, she had just become Pension Director at BT, something I found hard to acknowledge, she being young, female and down to earth.

It has taken my 15 years to acknowledge that being male, high-falutin and a wee bit older does not make me better at the job.

We have lived together most of the time since, occasionally she’s kicked me out when I became too annoying and like any couple, we live on our nerves .

Me working on the sell side , she on the buy side, at first made for conflicts of interest, but that’s turning to a kind of creative tension.

Many of what I thought my best ideas have bitten the dust when Stella harpoons them with her wit and good sense. Many of her best ideas are in my blog.

My favourite pension story involves Stella, who- when asked by the pension minister- “what do you want to change” replied

“the only guarantee I want to give my members is the right to buy a guarantee”

which for someone who has managed four of Britain’s largest DB plans suggests an independence of thought and a concision of language which are as valuable as they are rare.

I hope the day will never come when we are  apart, on my Valentine’s card to her are the words

You complete me

I would be a broken person without Stella, or “even less complete” as she put it when she opened the card.

Stella will probably not read my blog, she does anti-social media, like Corrie and Heat Magazine and Inspector-bloody-Morse.

She is happiest when she is shopping and happiest of all when she returns from the shop with ridiculously underpriced garments from TK Maxx and yellow-labelled bargains from Waitrose.

Her natural habitat is Poundland not Christian Dior though she could afford to buy the shop-out.

Today we are off to Ascot, as much because it is free to get in as that we love racing! Stella’s values come from her upbringing when every penny counts. But she is not mean, when she gives, which she does a lot, she gives big.

Anyone who has worked with her , will know her for her intelligence but also for her integrity. She may outwit you but she will not cheat you.

She can be withering in her criticism, not to make you small but to make you better. Those she does not like, she will not bother with – she in not vindictive, she is  supportive – she carries many people, but not fools.

I hope that you can say good things of your loved one. I hope you can feel as proud as I to be with the person you are with.

If you are on your own this Valentines, I hope that you will find love  as I have. Or, you find something that helps you, whether that consolation is spiritual or temporal.

Life’s a bit of shit, when you look at it, but through love we can make sense of it.

Posted in Bankers, brand, Candy Crunch, iphone, pension playpen, pensions | Tagged , , , , , , , , , | 3 Comments

As clear as a frosted window – the IA on charges (again)

'You're doing a little better since we deworsified your portfolio.'The Investment  Association (IA) have published another paper as their contribution to the ongoing debate on what the public and their fiduciaries should know about their funds. The paper fails on a number of levels

1. It ignores the fact that the FCA are far enough down the road to statutory disclosure to make this paper all but irrelevant

2. The paper continues to downplay the role of  fiduciary (IGC and Trustee) and hide behind the lack of comprehension and disinterest of consumers as an excuse for inaction.

3. The paper is appallingly written (if the IA are to act for consumers then they will need to find a language that normal people speak) 4, The central argument of the paper, that we should treat transaction costs separately from the fixed costs borne by members of the funds is flawed.


This paper is only one in a long line of initiatives from the IA, designed to take back control of the price we pay for our funds. The fundamental conflict is still not addressed. In a world of 13 shades of intermediation , the costs of fund management are either too complex (for the consumer to analyse) or too great (for a fiduciary to stomach).

The IA’s argument is to keep these costs locked in a cupboard, the keys of which need to be requested. So the IA are the authors of their own proposed accounting standard, they determine the way costs are presented and they determine the rules regarding the minutiae (for instance the bundling of research into transactional costs). The IA are now trying to ride a wave of popular discontent with European intervention by setting their new position (which is pretty much their old position) as a bold move to stand up to Brussels.

Weirdly, this is not an occasion that any sensible person would disagree with Brussels. Indeed the FCA and Brussels are for once as one both in the ways and means of charge disclosure. By courting an unlikely alliance between the fund managers and their consumers against the UK and European Regulators, the IA are walking on quicksand. Unlike King Canute, they may not even get as far as contesting the waves.

Who is the consumer’s champion?

Consumers employ many intermediaries between them and the direct purchase of an asset. The fund manager is only one, though he has the major role of controlling most of the costs incurred within the fund. Other intermediaries are advisers, trustees, IGCs, insurance companies and platform managers.

These “other” intermediaries, if they have value, are paid to ensure that members of the funds get value for money. Very few consumers do not have these layers of intermediation when buying a fund and it is fair to say that those who buy funds directly tend to be the kind of consumer who can work things out for themselves.

So the argument that consumers will be confused by the disclosure proposed by Europe, the FCA and most fiduciaries who know what is going on, is specious. There is increasing knowledge on the buy side and for the IA, the game of filibustering over investor confusion is up.

If you cannot write transparently, how can you act with transparency.

I will not cut and paste any section of the paper to demonstrate its intent. Almost every sentence is full of long and difficult words, clauses and sub clauses that make understanding sentences a struggle.

If the aim is to demonstrate that the subject is too complex for ordinary people to understand, it succeeds, but only by the use of impenetrable jargon and syntax that should be a warning to the reader that this is not a paper attempting to make things clear.

That the IA argue that their proposals are aimed at the person on the street , but present them in such arcane terms, demonstrates the fundamental flaw in their approach, they simply are too conflicted to pronounce on the subject.

Past costs cannot be taken as a proxy for future costs?

At the nub of their argument, the IA propose that the overt costs of fund management- the Ongoing Charges Figure (OCF) be quoted separately from those member borne charges to their fund that are born covertly (and only appear today in obscure documents itemising costs charged to the “net asset value of the fund”. The impact of this is that the public will still be blinded by a partial number that claims to be an “overall” number and will have to add two numbers together to get to what they are actually paying.

This may seem a matter of semantics, but any salesman (or behavioural scientist for that matter) will intuitively understand that a simple number called “ongoing charges” will relegate a complex set of numbers – requiring a deal of explanation, back into the cupboard of concealment. The reason given for this separation of costs is that while the OCF number is fixed (it pays the fund manager) the other number- representing transactional costs is variable and cannot be relied upon to occur in future.

But if a manager has a track record of high transactional costs, it is fair to assume that he or she is incurring those costs for strategic reasons (and not just because he or she has no cost control). If costs are consistently high and performance is consistently high, why not invest in such a strategy, if costs are high and performance low, then the manager’s value for money is questionable. To suppose that there is no strategic intention in having high costs and that the manager might have low costs the following year, suggests that the manager has no strategy at all, There is no point in the IA continuing to argue for the separation of transactional costs and the OCF. If we are going to have an OCF or a TER or any number that claims to total charges, then it must be inclusive of everything.

A paper worth reading?

I am afraid that I have only half read this paper. I have not completely read it because it was so badly written, so annoyingly patronising towards the consumer and fiduciary, so deliberately dissembling in its central arguments but above all so utterly irrelevant to the central argument. The central argument is that we need good governance, we need to know what we are paying for and what value we are getting for the payment. We need to exercise that governance, usually on behalf of others, with full information and we need to get on with it. If the IA are not going to come to the party but are going to continue to write long and pointless papers like this one, they will become an irrelevance themselves.

Posted in accountants, advice gap, Fiduciary Management, Financial Conduct Authority, investment, ISA, pension playpen, pensions | Tagged , , , , , , , , , | Leave a comment

Good news from the Regulators








It has been an important week for the regulation of workplace pensions.

Not only have the DWP published the rules that govern workplace pensions qualifying to be used for auto-enrolment, but the FCA  published – on the same day- the rules for the enforcement of such rules  by Independent Governance Committees. For those who have moaned about the lack of joined up Government elsewhere in pensions, this should be welcomed!

While I have little to say about the DWP document, other than to applaud that we have moved a step closer to implementation, I have much to say about the Final Rules for Independent Governance Committees – good words

While there are things in the paper , we argued against (notably the inclusion of corporate trustees as potential participants in IGCs), the good so outweighs our minor concerns as to be of no matter.

Most important of all, the FCA appear to be taking a no-nonsense approach to the disclosure of costs as part of the “value for money” formulation. We have yet to arrive at an agreed template to be presented to fund managers so that IGCs can discover how much members of workplace plans are paying for intermediation, but I am confident that a simple template will be coming soon.

Despite the protestations of fund managers, even their trade association seems to have accepted that the basic measures that fiduciaries need to assess cost are communicable!

If you think about it, it would be shocking were they not! Can you think of a single product where a professional buyer could not be told the price he or she was paying for a product or service?

Which brings me on to “buying”. The latest “concerns” expressed by those on the sell side of fund management are all directed at the consumer

  1. That consumers might interpret costs incurred in previous years as indicative of costs to be incurred in years to come
  2. That consumers would be unable to see the wood (value) for the trees (costs)
  3. That in discovering how much was going in intermediation, consumers would turn on pensions.



I think we need clear-headed thinking on this. Firstly on past costs, we really should expect consistency in the incurring of costs from year to year. If a high cost manager is following a strategy that delivers out-performance as a result of these transactions, then a decision to continue to use him, should be based on an acceptance that these high costs could and should continue.

If the costs in the past were accidental and not to be repeated then an IGC should take a dim view of this. Accidental costs suggest a lack of controls and too little focus on treating a customer fairly.

The IMA and their members are shooting themselves in the foot in suggesting that past costs should not be considered as indicative of what is still to come.



Nobody, not the FCA or Insurers or Fund Managers should be expecting normal people to be taking decisions on funds they use for their retirement savings , on a detailed analysis of all intermediated costs within a fund.

That is whey IGCs have been set up and it is why we have occupational trustees. These people should be sufficiently skilled and knowledgeable to see the wood for the trees and make assessments of value for money. Consumers will continue to look at a default fund as the best guess of the IGC or Trustees as being in their general interest and will only make purchasing decisions beyond the default because they feel empowered to do.

Clearly IGCs and Trustees should do all they can to only promote funds on the platforms of workplace pensions that do not put retirement savings in peril but a lesser duty of care is required where the consumer is ski-ing off piste.



There is a very real chance that we will see class actions in this country by consumers who feel they have been let down by their fiduciaries in helping them with pension decisions.

Recently both Fidelity and Wall-Mart have been on the end of some stinging court judgements in Canada initiated by members who (in the case of Fidelity) objected to unnecessarily high charges and in the case of Wall-Mart objected to the lack of care taken in selecting pension services on their behalf.

The concern expressed by some at an NAPF event this week that by disclosing the true nature of things to members, we might see similar events in the UK is well-founded.

Were we to have a level of awareness of the importance of good management of costs and charges within pension schemes, such as fiduciaries such as fund managers, administrators and employers felt they were under the scrutiny of members- I WOULD BE GOOD!



We cannot expect confidence in pensions to be restored by continuing to hide behind specious arguments. We need simple measures that allow one fund to be compared to another for its value for money, the same test needs to be applied to other aspects of the workplace pension service, administration, communication, at and in retirement services.

Nor can we expect members to make these judgements unassisted, we need IGCs and Trustees to be doing the heavy lifting so that members can get on with their critical job, putting money aside for future consumption.

Finally, we cannot continue to protect people from the truth. If there are bad news stories out there, they need to be brought to people’s attention and, if necessary, those who have failed will need to get a kicking from fiduciaries, regulators and consumers.


We are another mile down the road, another stone has been passed, but to suppose that we have got there yet would be to give false hope to the kids in the back.

We are getting there. Thomas Phillipon, at a lecture at the London Business School put the journey in perspective. The total cost of intermediation (that is all costs between the distribution of a return and the return people get in their pocket) is around the same today as it was in 1880 – around 2%pa.

For Costs and Charges to fall substantially below this amount, means a sea-change in the way we go about buying, selling and regulating.

But there are three reasons to be optimistic

1. There is a higher level of engagement with these issues outside those on the sell-side (consumerism)

2. There is easier access to the data to monitor costs and charges leading to better education of fiduciaries and consumers

3. There is a clear structure being in place to empower fiduciaries (IGCs and Trustees) to do something about abuses and ensure high standards (where established) are maintained.

Which is why I am generally optimistic, albeit optimistic about improvement from a low base.





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“Beware the mastertrust my son!” 6 reasons to be careful



Ok. It may not have jaws that bite or claws that clutch or be quite as frightful as the Jubjub bird, but the mastertrust may be no friendlier than Lewis Carroll’s Jabberwock.

This is not a trendy thing to say, since if you’re a pension consultant, the chances are you are pinning your hopes on your master trust with bells and whistles and impeccable governance. You may work for one of the big three (NEST, NOW or Peoples), or you may be a privateer offering master trust solutions to the IFA community to be rebadged and vertically integrated.

Well over half the 5m newly enrolled employees are in mastertrusts, the NAPF desire assets to be aggregated into them and NEST Insight found that most employers got no further than comparing NEST “and one or two mastertrusts”.

But this cult of the mastertrust should ring alarm bells; – for auto-enrolment, for participating employers and most for the member of schemes.

So what makes mastertrusts “no-brainers”?

I’ve identified five factors and all give me cause for concern.


  1. Mastertrusts are cheap to join; currently large master trusts are subsidising installation costs from reserves, giving employees a free ride. This gives them competitive edge but like credit cards, mastertrusts are for life not just for their initial rates.
  2. Mastertrusts are trusts; a trustee board sounds friendlier than an IGC and a few choice names from pension’s legion of honour is enough to tick the governance box for many. But when it comes to the acid test of Governance, only two master trusts (NOW and Peoples) have so far signed up to the Master Trust Assurance Framework (MAF), despite it deriving from the ICAEW and tPR.
  3. Mastertrusts stay clear of retail regulations; for now, mastertrusts are none of the FCA’s business, but with Freedom and Choice and the arrival of 1.3m SMEs and Micros, the traditional boundaries between institutional and retail are blurring.;
  4. Mastertrusts are easy to run; unlike insurance arrangements, mastertrusts are not subject to Solvency II and don’t even have to undergo the capital adequacy tests needed to run an advisory firm. In theory this makes them nimble and cheap to run, in practice it means they run with little margin for error. Without adopting the controls laid out by MAF, are they as sage as contract based arrangements?
  5. Mastertrusts can invest anywhere; they are not subject to “permitted links” regulations (that restrict where insurers may invest). In theory mastertrusts have greater flexibility, in practice this makes them the ideal vehicle for pension scams.
  6. Mastertrusts can de-risk unwanted DC liabilities they are taken to be a “safe haven” for employers. But they may not be. Contrary to what many suppose, you cannot offload your company’s pensioners and deferreds into somebody else’s master trust and wash your hands of the liability. You remain a participating employer of that mastertrust for so long as your former members are in it.

Whether master trusts are being used for auto-enrolment or to de-risk existing schemes or even as the template for CDC, they are not a super-solution and should be subject to the same scrutiny as any other structure.

As one occupational scheme manager put it to me “why should I use a structure where I am liable for the risk but have no control of the management”. She was considering how she could sign-post her “over 55s” and could see little comfort in the consultancy engineered master trust that was being offered her.

The adage “if it looks too good to be true..” applies. While there are good mastertrusts that rival the best contract based plans in terms of price, governance, investments, employee guidance, auto-enrolment support and investment, there are many that don’t and some that are no better than the “frumious Bandersnatch”!


This article first appeared in Professional Pensions

Posted in Guidance, Payroll, pension playpen, pensions, Pensions Regulator | Tagged , , , , , , , , , , , | 1 Comment

Are workplace pensions “risk-free” to employers?

Risk free 2

If you think workplace savings plans are “risk-free” to employers – think again; “value for money”  changes that


Later this year I will be speaking at a conference about what we can learn from Canada and what Canada can learn from us.

Roger Mattingly at a recent NAPF meeting noted that in the debate we are having on “value for money” , employers need to be careful that they actually provide it through their workplace plan.

By coincidence, this article arrived on my timeline this morning, written by Colin Ripsman , a Principal at Eckler, a Canadian consultancy, it is with one of his colleagues that I will be speaking.

This article first appeared in  Benefits Canada.

Earlier this summer, Fidelity Investments settled two lawsuits brought by employees over the company’s own 401(k) plan. The suits alleged the firm offered employees its own higher-cost mutual funds when cheaper fund options were available and charged recordkeeper fees that were too high for a plan of its size. Fidelity contends the suits were “without merit” but settled for $12 million, which will be shared among more than 50,000 employees.

While the Fidelity settlement was notable, it was by no means the first 401(k)-related class action brought against a U.S. employer—or even the largest. In 2011, for example, Wal-Mart and its 401(k) recordkeeper, Bank of America, agreed to a $13.5-billion settlement after employees of the retail giant filed a class action alleging “unreasonably high fees and expenses.”

Canadian DC plan sponsors, to this point, have largely avoided this class action litigation that is increasing against U.S. 401(k) sponsors. There are a few reasons for this. While the popularity of 401(k) plans began growing throughout the ’80s—meaning many employees are now reaching retirement having accumulated much of their retirement savings in these plans—Canadian DC plan growth didn’t take off until the late ’90s. Few Canadian DC plans require members to make a significant investment in their employer’s own stock—something that is a rich source of DC-related litigation in the U.S. And Canadians tend to be less litigious in general compared to their cross-border counterparts, with awards in successful Canadian lawsuits being smaller than in the U.S.

Still, there is a growing fear among Canadian DC plan sponsors that, as the average Canadian DC plan member’s accumulation grows, so, too, will the risk of litigation—particularly as more people retire with savings that have grown primarily in DC accounts and their retirement income expectations are unmet.

Read: The hidden legal risks of DC plans

Risks to watch for
An Eckler-hosted roundtable discussion earlier this year brought together eight leading Canadian pension lawyers to discuss the risks DC plan sponsors face and how they can better protect themselves against potential legal action.

Participants agreed Canadian DC plan sponsors face an increasing risk of class action, with former employees of a sponsor company the most likely to drive such action. These former employees would have the most to gain, as they would likely have gained larger DC accumulations over their career—and the least to lose, since they would no longer be reliant on the sponsor for employment.

The lawyers also noted that, based on lawsuits in the U.S. and Canada, the following are most likely grounds for future class actions against Canadian DC plans:

1. Uncompetitive fees – Investment fees directly impact returns, as well as the retirement income levels that can be generated from DC balances. Under a DC plan, the employer typically negotiates fees, while the member pays all or a significant percentage of the fees. Where members are paying higher fees than those of plans with similar specifications—thereby eroding member accumulations under the plan—sponsors may be at risk of class action.

The best defence against this risk is to use an unbiased third-party consultant to regularly benchmark plan fees and to document and confirm that the plan remains competitive in the industry. Where benchmarking indicates that fees are uncompetitive, the plan sponsor should renegotiate fees.

2. Underperforming investments – Investments that underperform comparable funds erode the value of member accounts relative to better-performing options. A class action focused on investment underperformance would claim that a plan sponsor failed to take action to replace an underperforming investment option with a stronger-performing fund in the same category.

Due diligence is the best defence against this type of action. This involves adhering to the plan governance model, which would require regular ongoing monitoring of the investment structure and using a third-party expert to assist in this monitoring. Those governing the plan should document all monitoring reports, recommendations made and actions taken.

There is no expectation that sponsors are always able to offer the best performing funds in all asset classes. However, should the funds offered fail to meet performance expectations over a reasonable period of time, the sponsor should take action.

Read: Focusing on decumulation

3. Misleading communication – Depending on what and how a plan sponsor communicates, members may be misled to believe that their plan will satisfy all of their retirement income needs, or that accumulations will finance a larger retirement income stream than should reasonably be expected. Members may blame unrealized expectations on the plan sponsor’s misleading communications.

The best way for a plan sponsor to protect against this risk is to build member communication around messaging designed to properly manage expectations. It should clearly outline the plan’s purpose and clarify member responsibilities. Copies of all distributed communication material should be retained by the plan to assist in possible litigation. Also, any projection models used to demonstrate accumulation levels and retirement income should use conservative estimates and include clear disclaimer wording.

4. Defaulting to recordkeeper products on termination – Terminating DC plan members are often presented termination options by the recordkeeper. These options typically include, as a default, transferring the balance to similar investment options as the member held in the accumulation phase. However, these termination options are held directly with the recordkeeper. They are often priced significantly higher than the funds offered in the employer-sponsored plans, but at a small discount to competitive retail fees. While terminating members are not required to choose these recordkeeper options, evidence suggests a high percentage do.

Plan sponsors can protect against this risk by taking more control of termination options. If the recordkeeper default option is allowed to be presented to terminating members, the employer should satisfy itself that the offering is reasonable (given the profile of the employee base), prudently managed and reasonably priced. Related communication should clearly explain that employees have the right and responsibility to shop around before deciding where to transfer their funds.

Read: Emerging legal issues for DC plans

Protect your plan
In addition to the suggestions outlined above, the lawyers offered the following take-aways and best practices for DC plan sponsors that want to ensure they’re as protected as possible against potential member-led class actions.

  • DC plan sponsors that offer too much investment choice may face greater legal risk than sponsors that offer too little choice.
  • Assisting terminated employees with options during the decumulation phase introduces no greater level of risk to the plan sponsor than the risk assumed by helping members through the accumulation phase. Decumulation assistance may also reduce the likelihood of a claim, to the extent that it acts to improve income efficiency in retirement and is aligned with CAPSA Guideline No.8.
  • In jurisdictions such as Ontario, where an annuity is the only legislatively prescribed default decumulation option for registered pension plans, plan sponsors may not default pensioners into market-based termination options.
  • Capital accumulation plans (CAPs) not covered by pension standards legislation (such as RRSPs and deferred profit sharing plans) may pose greater legal risk to plan sponsors, due to lack of clarity of responsibilities, resulting from the lesser regulatory standards and guidelines that govern them.
  • The terms retirement and pension plan should be avoided in DC plan member communication. Instead, capital accumulation plan and savings program are preferable.
  • Communication should reinforce that the DC plan is not intended to be the only source of a member’s retirement income. Members should also be reminded to look to government benefit entitlements and their personal savings outside of the plan.
  • The best defence against legal action is due diligence, which consists of the following key elements:
    1. following the CAP Guidelines, as well as additional CAPSA Guidelines;
    2. following current market best practices;
    3. maintaining and following formal written governance structures;
    4. documenting all plan decisions and the factors used to reach decisions;
    5. using third-party expertise, when that expertise is not directly available to the pension committee;
    6. regularly monitoring plan investments and recordkeeper performance;
    7. regularly benchmarking plan fees; and
    8. ensuring the messaging in any off-the-shelf recordkeeper education material is tailored to the target employee base and is used is appropriately.

But while Canadian DC plan sponsors have largely avoided the kind of legal action faced by plans in the U.S., the risks will continue to expand as the number of Canadians in DC plans, and their respective balances, grow. Through effective plan design, prudent investment choice and clear communication, DC plan sponsors can set the groundwork now that will help protect them as more and more members retire from DC plans in the years to come.

Colin Ripsman is a principal at Eckler Ltd. The views expressed are those of the author and not necessarily those of Benefits Canada.

risk free

Is it quite this simple?


Posted in advice gap, Bankers, consultant, dc pensions, Fiduciary Management, First Actuarial, pension playpen, pensions, Retail Distribution Review, Retirement | Tagged , , , , , , , , , , , , , , , , , , , , , , , | Leave a comment

Can we afford financial services in times of austerity?



Thomas Philippon , the celebrated economist, gave a lecture on Tuesday Morning as part of London University’s Leading Minds series.

The gist of his talk is that the cost of financial services (the collective name for everyone who is an intermediary between the gross return and what we get – is 2%pa.

What is more, it has remained roughly 2% pa since the late 19th century (before which there is no adequate data). There have been times when it has been less (during the second war) and there have been times when it has been higher but 2% pa seems to be the cost of financial services to which things revert.

Yesterday I met with Daniel Godfrey who is chief executive officer of the Investment Management Association. We had a discussion about the costs of fund management (including the variable stuff you don’t see as it impacts the return on your money without being declared).

Daniel made the point that declaring the variable stuff was dangerous as past costs should not be relied upon as indicative of future costs. The same point was made by fund managers and consultants at an NAPF meeting held last night to discuss value for money.


Some things never seem to change

I pointed out to Daniel , that Thomas Philippon’s work suggests that whatever else varies (stock market returns, inflation, bond yields) , one thing is certain, the financial services industry will always be paid.

What I didn’t point out was that the current growth projections for a taxed fund (permitted by the FCA are around 4%. So that 2% pa represents about half what someone is expected to make from an investment.


Should we be surprised?

Philippon expressed surprise at his findings. He had firstly assumed that Adam Smith was right and that specialisation would lead to greater efficiency.

Another economics professor, John Kay , has pointed out that a typical financial transaction passes through the hands of 13 intermediaries between execution and the point where someone can take his or her money.

Phiippon concluded that in the matter of financial services, Adam Smith appeared to be wrong, intermediation did not lead to greater efficiency, it just led to more intermediaries.

Philippon was also surprised that despite the recent (in terms of his study) arrival of the computer, the costs of financial services had not fallen. One voice from the floor suggested that the technology dividend appeared to have been paid to only one class of stakeholder- the intermediary.

All this may not seem very new. In 2012 John Kay wrote

the stockmarket exists to provide companies with equity capital and to give savers a stake in economic growth. Over time that simple truth has been forgotten.

As the title of Philippon’s lecture was “rebalancing the unequal financial service system”, I had hoped for some news of progress. Perhaps the financial services industry had woken up and were likely to give up some of the 50% of the economic growth that they are currently taken.

Edward Bonham Carter, who runs the fund manager Jupiter, made the point that a large part of Britain’s economic growth was down to financial services, which sort of answered the question parochially, though I doubt that thought was of much comfort to the 58m who don’t participate in our financial services industry.

For the 2m who do, the IMA and the NAPF and our other august institutions are doing a great job, ensuring that the financial services system remains unbalanced.


Should we tell the staff?

As Roger Mattingly, speaking at the NAPF’s event pointed out, opening up debate on value for money to members of pension schemes could lead to them asking all kinds of awkward questions, to which we would have no answer.

I think he is right, as I went home from last night’s event, I reflected on the various meetings of the past two days and asked myself whether we can continue to afford to pay financial services so much of our economic growth. Just the kind of question I suspect Roger worried about me asking.

The sharp witted of you will recognise that the keyboard on which I write was paid for from the funds of pensioners and that I am complicit in this, I bite hands that feed me.

And this is the point. As Daniel points out, the IMA and NAPF are member led organisations. They sit at the top table and inform the FCA and tPR on policy matters.

The FCA and tPR are however tax-payer (consumer) led organisations. Yesterday, the FCA published the final rules for the governance of independent governance committees. On the same day laid the draft regulations for better workplace pensions .



What these documents have in common is a recognition by Government that the free for all that the unequal financial services system must change by force of law.

In ridding us of active member discounts, imposing a charge cap and requiring trustees and insurance companies to put the consumer first in considering value for money, the Government are intervening in a very radical way.

One Trustee, sitting next to me at the NAPF meeting made a good point.

“Good governance is a state of mind”.

“Financial Services” will only be able to understand these regulations if they change their mind

By the end of next parliament, I expect that people will be able to see the past costs of the funds into which they invested and draw their own conclusions. I suspect that as they do with past performance, they will compare and contrast.

Consumers, and those who act for them (fiduciaries) have to be able to understand what they pay for financial services. Government need to make this happen.

If they do not, there will be no pressure to bring costs down, that 2% pa will just keep rolling along, the rich will get richer , the poor get poorer- everybody knows.




Posted in FCA, Fiduciary Management, Financial Conduct Authority, Politics | Tagged , , , , , , , , , , , , , , , , , , , , , | 3 Comments

Is Pension Wise doomed from the start?


This question was posed on the Pension Play Pen Linked in Group by Jonathan Lawlor, a distinguished actuary and someone who thinks about these matters with an independent mind.

He had been reading a new paper by Debora Price “Financing later life: why financial capability agendas may be problematic:” which states

There is “no evidence that financial education has any substantive long term impact on financial outcomes”

There are a number of challenging thoughts in the paper:

” we see that it is individuals that must change their behaviour to meet the needs of the market, rather than the other way round……

They are no longer citizens of equal value to the State but now consumers who must play their various responsible parts in the functioning of the financial services industry”.

It is language like this that serves to construct failures in the government project for the provision of financial welfare in later life through the private sector not as the result of flawed government policies, but rather a result of flawed people.

Following the logic in extracts such as these, if the financial services market does not work efficiently, does not lead to innovation, offers poor quality and poor value for money,it is not the fault of government in designing the system, but of individual ‘consumers’ for not being sufficiently well informed. “

This view of the individual , at the mercy of what the financial services companies give them is commonly held, not just by academics but by “consumers” in general.

But it is a selective view. There remains a substantial body of opinion, of which Debora is both representative and a thought leader, who consider the role of the state to ensure that financial outcomes are good , both by intervening in the financial services market and by delivering pensions which have nothing to do with insurance companies, asset managers and financial advisers.

Indeed most people, were they aware of its value, would regard their rights to the basic state pension as their largest unencumbered post retirement asset.

I am sure I am misrepresenting Debora in suggesting that her view is unbalanced. I know her and have spent a fair few hours in agreement with her. If I differ from her, it is because I am on the inside of the private pension system and she is looking in.

I know that there is a strong bedrock of decent people within pensions who are fed up with seeing the pensions industry being dragged down by shoddy practice in whatever form. Who aspire to restore confidence in pensions by practicing what we preach.

Practicing what we preach

I would include among these people the 40 odd people who work full time for TPAS, the 400 odd case-workers who provide services for free to help people resolve pension disputes, the army of lay trustees who sit on pension trustee boards for nothing and the many people like Jonathan, who are actively engaged in finding new ways to old problems.

I don’t think that Pension Wise is the answer, but nor do I expect it to be a disaster. It will be what it sets out to be, a way to help people organise their thinking around the money they have at their disposal to supplement the collective benefits they have.

“Financial products” , annuities, income drawdown from SIPPS and Personal Pensions and the variants that are likely to mutate from Defined Ambition are not the answer for most people.

These products require people to make the “right decisions” and Pension Wise will not – in itself – be able to do this. It may be the catalyst for some to take control of their finances as Martin Lewis is the catalyst for many people to go debt free.

But we don’t generally have the financial capability to do the complex maths to work out how much to draw from our savings to make them last. Nor can we easily grasp the concept of insuring against long term care and we are hopelessly inadequate at doing the asset liability modelling to make the right investment decisions on our glide-path to death.

Even if we get so far as getting a plan, we then have to make choices on how to implement it and that means understanding the range of financial products and choosing which are best for us.

People should not be demonised for not being good at pensions

It is not fair to make ordinary people feel guilty for not being able to think all this out.

Instead , we need to find new collective mechanisms for people who aren’t wanting or able to navigate around all the choices I’ve just talked about. Thankfully there is a piece of legislation making its way onto the statute books that enables such collective schemes to emerge.

And it is important that these new collective pension schemes (known today as CDC) are allowed to emerge without them being strangled by the financial services industry.

I am with Debora that it is not the fault of people that they don’t get financial services. Nor are they naughty for not being able to do the maths.

People should be able to join collective schemes without the need for financial advice and not just because they are lucky enough to work for an employer who is prepared to set one up or participate in one.

Everyone should have the right of putting their retirement savings into collective arrangements – either run by the State – as NEST is – or by the kind of organisations who really do care for people in older life.

In case anyone is any doubt – such organisations do exist.

Pensions Wise is one such organisation.

Pension Wisemichelle

Perhaps Debora sees it as a shield to fend off charges that “Freedom and Choice” is a reckless abdication of responsibility. Anyone who has heard Michelle Cracknell speak or seen TPAS at work would not damn Pension Wise for that. It is what it is.

F1rst Actuarial hi-res

Nor should we dismiss all financial advisers and employee benefit consultants.

Some commercial organisations that provide financial education in the workplace are part of this Force for Good.

I can say that with some confidence as I work for an organisation that really thinks about how these issues and is trying to provide financial education that does not promote products but aims to ease decision making.

We should not and do not say “it’s your fault”. But we can’t pretend that people are prepared for the financial implications of a long life.

Debora is right, Pensions Wise and Workplace Financial Education are not enough to sort the problem. The problem cannot be solved by personal empowerment or “the financial capability agenda”.

The solution to society’s problem with later life lies with society and with social or collective financing. We need to continue to rebuild the state pension, we need to get a proper system of funding for long-term care in place and we need to find a home for people’s pension savings that is not a “financial product”.

Without Pensions Wise things could  be a whole lot worse, it is not the answer in itself, nor is it a sticking plaster, but to be successful it needs to signpost to proper defaults.

Debora Price – Pension Champion

We are very lucky to have Debora Price saying these things. I might add she is a great golfer (currently ladies champ of the Pension PlayPen Golf Society)

golf 044

But if you really want a proper understanding of her views, I urge you to spend 30 minutes listening to this (thanks John Lawlor again -for sharing).

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De-risking strategy found in pocket of comatose trustee



The Pension Plowman rifling through the pockets of a trustee lying in the gutter following an all night pension celebration , has found too documents, the first a copy of Corporate Adviser the full text of which can be read here

One section of one article was ringed in red lipstick

The government is relaxing the rules around requiring advice for DB to DC transfers, with the £30,000 threshold to be applied on a per pension basis rather than on a total benefits basis.

It had originally only planned to allow DB transfers without authorised financial advice where an individual’s entire pension assets were below £30,000.

The other document appears to be a sales script hand-drafted with the title

How to get rid of the poor buggers!

For the benefit of readers who may be able to benefit from such assistance I include the entire text

Hi there!

So let’s get this right-

You’re over 55 , have some defined benefit rights in our pension scheme and could do with the money – now! Faster than a payday loan, I’m going to make you an offer.

It’s called a DTV. That stands for depressed transfer value.

Now I know you were hoping for fair value from you transfer value but there’s a problem, fair value for your pension rights is around £35,000.

There’s a problem with that £35,000- it’s £5,000 too much to help you. So we’re going to depress it to £30,000 so you can have the money tomorrow!

It’s not our problem, it’s the Government’s. You see those twits in Whitehall are saying that if your transfer value is a penny more than £30,000, you are going to have to take advice and you’ll have to find an insurance company that’s prepared to take your money and by the time you’ve done that it will be too late – your gratification will be deferred!

And what’s more y0u’ll still only get £30,000 because all the fees and commissions will skim off £5,000 – easy!

So we’ve decided as your trustees to ask you to accept £30,000 and we’ll bring it round in used fivers tomorrow morning! Infact we’ll get our actuary to deliver it you in person. Better still we’ll ask his young attractive actuarial student to bring it round in person!

Who said we don’t incentivise transfer payments!

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How low can guidance go?

without advice

The FCA have published an important document that sets out to define where guidance ends and advice begins. Thankfully , it’s one you can read without feeling guilty that you aren’t going to answer 150 consultation questions!

The FCA has also published feedback from advisers as part of this paper which will hereby be known by the FCA as FG 15/1 and on this blog as ‘finalised guidance”.



Knowing your boundaries

In the Executive Summary we learn that the FCA

“know that firms want greater clarity about how they can help customers to make informed decisions without stepping over the boundary into providing a personal recommendation”.

This is certainly true of my firm, First Actuarial which acts for many employers keen to help staff take prudent decisions on their finances that will make them more productive when they work and more comfortable to stop working as they get older.

So what is defined as advice?

MiFID investment advice involves the provision of personal recommendations to a customer, either upon the customer’s request or at the initiative of the investment firm, in respect of one or more transactions relating to financial instruments.

They give as examples

  •   Advice to a customer to buy shares in ABC plc or to sell Treasury 10% 2014 stock is advice about a specific investment and so is regulated.
  •   Advice to buy shares in the oil sector or shares with exposure to a particular country is generic advice because it does not relate to a specific investment and is not regulated.
  •   Advice on whether to buy shares rather than debt is generic advice and is not regulated.
  •   General advice about financial planning is generic advice and is not regulated.
  •   Guiding someone through a decision tree where they make their own decision,would not normally be advising on investments

“Generally speaking, giving someone information and nothing more, does not involve giving regulated advice’.


Applying those boundaries

The paper goes on to apply these principles to the changing behaviours of the people who take advice

Research by Mintel (April 2014) shows that around 40% of customers currently prefer to receive personal recommendations face-to-face rather than online, although 24% would be willing to receive personal recommendations online.

An example is given and the FCA conclude

the ability of the customer to make their own choices about the features they are looking for and the absence of apparent judgement about which features or products they should choose, would make it unlikely that the service offered would be viewed as MiFID investment advice (i.e. a personal recommendation).

This, in my opinion, is the key statement. I have made bold “absence of apparent judgement” as this phrase underpins what we consider “integrity and independence” to be all about.

Removing bias , so that information is distilled to its absolute relevancy, the circumstances of the individual taking the decision, requires great skill and knowledge of products and how they work, but it does not pre-suppose a judgement of what’s right for an individual.

In the final call, guidance stops short of being an absolute recommendation because it does not make that call.

Project Innovate

Of great interest, is the FCA’s offer to test on-line decision making tools using its Project Innovate  service.

As I understand it, an advisory firm can submit to the FCA data for evaluation from a test sample of clients who receive information  in a traditional way (fact to face) and then receive the same information self-served via the internet.

To take a local example.

  1. An employer asks an adviser for help in choosing a workplace pension , a market review is purchased and delivered face to face which leads to their making a decision. This process costs £2,500
  2. The same employer asks a comparison website for help in choosing a workplace pension , a decision is taken online without any manual intervention. This process costs £500.

I would hope that Project Innovate would help establish

  1. Under the FCA’s new definitions, which of these two approaches would be deemed advice, which guidance.
  2. Whether the employer in example one had materially better information/guidance/advice than in example two
  3. How the FCA could determine whether either option was delivered with an absence of apparent judgement.

(I should point out that in the context of FCA’s regulated activities, whether it is advice or guidance, what is given to employers is not deemed a regulated activity).

workplace advice

Does the delivery mechanism make a difference?

I am not a behavioural psychologist. But I believe from advising face to face and being involved in providing online decision tools, that where people use the online tools, they are able to take decisions without considering the judgement of third parties.

Provided that they take these decisions in the full possession of the relevant facts, my view is that they take decisions with greater objectivity and that the outcomes of those decisions are

  1. more likely to be owned by the decision maker
  2. more likely to be beneficial to the decision maker.

These are bold judgements on my part. They are not tested and if I am able to convince the FCA that we can use Project Innovate to test my theory , I will endeavour to assemble a test group of clients to form a statistically valid sample for these two approaches to be set against each other.

Critical to the FCA’s thinking is that the circumstances of the client are vital. Simple decision making involving a relatively small number of inputs may favour Pension PlayPen, more complex decisions may favour First Actuarial. I would certainly hope that this is the case as the price differential suggests that there needs to be considerably more value from the manual interventions involved in the First Actuarial service.


Doing away with shades of grey

For me, the paper makes sense. The shades of grey that represent simplified advice and other intermediary definitions serve only to muddy clear water. If we can define advice as MIFID do and be as clear about what sits on the guidance side and what on the advice side as the FCA are in this paper, then those involved in delivering guidance will know the point of handover, those delivering advice will know their value.

Clarity on how advice and guidance work in the context of the new media is also valuable.

Most valuable of all is the insight that the “absence of apparent judgement” is the mark of guidance.

The nature of human interactions makes it hard to give face to face guidance without the body language and tone of voice giving unwanted bias to the guidance given. To a lesser extent this is true on the phone.

The digital information that is available from organisations as different  as Nutmeg and Pension PlayPen needs to be tested by Project Innovate. We need to get better at understanding how decisions are being taken, whether choice is sufficiently informed and how consumers can be confident they are getting value for money.

But this paper, the accompanying feedback and the launch of Project Innovate encourage me that we are on the way to understanding how low we can go with guidance.


Posted in advice gap, FCA, pension playpen, pensions, Pensions Regulator | Tagged , , , , , , , , , | 3 Comments

We need some disruption – to sort the Hard Problem



Tom Stoppard’s new play, the Hard Problem, asks whether individual consciousness (and the ideas of good and evil that go with it) can exist in a material world. A world in love with the matter of fact.

It’s been billed as an intellectual jeu d’esprit but I enjoyed it most as a study in the application of ideas in 21st century Britain. Much of the play touched on the activities of my daily living, which was odd as almost everyone in the audience appeared to be university lecturers!

The peril of being early

There’s a great moment in an early scene when an anonymous analyst for a hedge fund gets fired by Jerry Kroll (its owner) not for being wrong- but for “being early”.

His crime is to to share information that  Kroll, were he to retain it, could act on to create value for himself (destroying others in the process).

The play is not making a moral point, it is  rehearsing something that people in finance know  well – “keep your mouth shut”- “knowledge is power” and the ‘common “good” is not necessarily “good business”.

For Kroll there are no coincidences, only a failure in information. His fantasy is a world that is fully known – where nothing remains a mystery. But here knowledge needs to be the privilege of the few,the property of Kroll, his hedge fund and his institute.

Sacked for blogging!

The analyst blogs his way to a P45.

Independent blogging is not something that the financial services industry encourages. It’s too disruptive to business as usual, and BAU is what pays the bills.

The hegemony of large firms – whether in banking, fund management or consultancy – is absolute. As with Kroll’s hedge fund, the concentration of wealth (and therefore power) leads to asymmetries of information, where the ordinary man is cut out of the action.

Blogging adresses asymétries and democratises information.

A diversion into pensions (bear with)

I wrote last week about my concern that the independent governance committees were in risk of losing their independence (Gregg McClymont’s written similarly). My blog, openly criticising a major insurer and the process of selection that allowed a primary distributor to become an independent adviser, has caused pain and anguish in certain quarters (for which I’m sorry). It has caused a lot of anger too (for which I am not sorry at all).

The point of being independent is to provide an alternative perspective , to prevent market failures (from Madoff to Equitable Life). When Andrew Warwick-Thompson blew the whistle on Roy Ransome of Equitable Life and its burgeoning liabilities, he was legally gagged.

Warwick-Thompson was early, Gregg is early – I would like to think that this blog is “early”too.

In my neck of the woods , the legal threats are gone, instead the gagging is implicit in phrases such as “career threatening” – it is not a matter of being right or wrong – it is just about timing- it does not “pay” to be early.


Jerry Kroll and Hilary

If you’re not early – you tend to be late

The problem with not being early- is you tend to be late. If we had been early in identifying problems with pension mis-selling then we would not have had to put things right (at such great cost). If the pensions industry had listened to those like Alan Higham and Ros Altmann who demanded reform at retirement, we would not have had the chaos that we are facing today.

If you dam a river, you hold back the free flow of water and risk a flood when the dam bursts.

If you dam information, you do much the same, when the information that is held back, becomes public, the mud flies – and sticks.

Back to the play – “the play’s the thing”!

Within the play, Hilary is sustained by praying to a God that she believes will make good happen, she thanks that God when what she considers “good” happens to her. To this belief system, she attracts Bo, who falls in love with her, the kindly but spineless Leo and ultimately Kroll himself.

Madonna- eat your heart out!

She ain’t no madonna!

The show’s publicity depicts Hilary as a Madonna with her child. This doesn’t come across in performance.

She’s no saint- infact she’s a “tart with a heart” and about a quarter of the play is spent watching her jumping in and out of bed with Spike, a loathsomely one-dimensional crony of Kroll.

Far from demeaning her, I found her sexual exploits brought Hilary to life. Having had a child at 15, I expected a victim; instead I got a woman in control of her own sexuality (and a great deal more).

It all comes right in the end

For without her, there is no alternative to Kroll. The analyst is seen no more after his dismissal, throughout the Hard Problem, information struggles to be published for fear of the damage it might cause Kroll’s Institute (ironically of learning).

There are others within the institute who are conscious of the Hard Problem, but only Hilary who is disruptive enough to address it.

For all that, the play is a comedy. For all the destruction created by his extreme materialism, Kroll fosters a department of psychology within the institute that holds onto its Carthusian principles.

Paradoxically, the man who is God-like  in business  cannot  prevent the spread of consciousness , within the Institute.

This disruption culminates in Hilary declaring publicly that there is a God (and it is not Kroll), Though what God is, is defined here as what it is not. God appears as the  alternative to  pure Newtonian science that tells us that everything can be known.

Concepts such as “good” and “God” are able to be discussed within the play through the indulgence of Kroll. Somehow they even flourish. Kroll is shown as a father and in the denouement as someone who can recognise the good in Hilary.

The idea of motherhood as an example of altruism not egotism is returned to throughout the play.

There is a  human interest sub-plot within this involving a lost daughter, an adopted daughter and a found daughter. In the context of the intellectual action, it creates a narrative structure as we move to some kind of synthesis in the respect that Hilary earns from Kroll (both as a free-thinker and a mother).

This is not King Lear, it is more the Winter’s Tale. I would like to ask Olivia Vynall (Hilary) – who has played Cordelia – how she managed the transition to Hermione.

Even though it is not a bleak play-  it has bleak scenes (such as a disastrous dinner party) which show what could happen if Hilary were not there.

But we sense that Hilary will always be there- because she is given space to be. Is Kroll redeemed or redeemer – his relationship with Hilary is left an enigma.

Nous sommes Hilary (in our dreams)

This is the play’s political dimension. Set in the context of the suppression of liberties we are experiencing in other parts of the world.

tom stoppard

Ton Stoppard – a stranger to a hairbrush!

I felt when watching that because we are a free country, where you don’t get 1000 lashes for speaking your mind, Tom Stoppard can write such a play, Neptune Investment Management can sponsor it and I can write a blog about disruption inspired by its dialectic.

Hilary surprises us, she is neither victim, student, employee or maverick, she ends the play her own woman (and a mother) – she has opened all the doors

She earns this through 100 minutes of lacerating honesty on stage.

She is a 21st century heroine that we can aspire to be. Hers an example of disruption that helps us with the Hard Problem.


Hilary and Spike

Random Disclaimer

Some people don’t like the Pension Play Pen, they don’t like this blog, they want to “turn off the tap”. Some don’t even like First Actuarial because of the disruption it is said to have created by allowing all of this to happen.

The views of this blog are the views of Henry Tapper – no one else (unless the blog says so)!

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What should employers do about pensions?


Employers pay pensions – don’t they?

It’s baked into the DNA of Government social policy that a part of the welfare system is managed by employers prepared to fund an employee benefit that provides a certain income in retirement.

So much so, that in recent meetings in Whitehall with Government policy-makers, it was taken as read that employers would look to embrace the upcoming pension freedoms and pay people pensions not just as a result of a defined benefit promise, but from any defined contribution pots that had been built up.

As I have said a number of times on this blog, most employers have no intention of establishing the drawdown mechanisms, let alone paying non-guaranteed scheme pensions from DC monies, in fact they are looking for maximum separation from responsibility for DC outcomes.

As one pension officer said to me this week “we’ve had our share of risk”.

We cannot employers from throwing in the towel. Again and again they have been dumped on and the remaining incentives to run schemes do not outweigh the commercial imperative of managing the business for the interests of all stakeholders.

Paying pensions is no longer part of the deal and if employers could attach a transfer value to all retirement statements  and discharge their liabilities by means of a lump sum, many would. Indeed many are trying to do just that.


Transferring pension risk to staff is not “risk-free”!

An employer, and an employer’s trustees, have access to good quality pension advice provided by independent consultants and delivered professionally. Here for instance is a briefing note issued to employers on the pension freedoms

From 6 April 2015 those with defined contribution (DC) pension savings will have greater flexibility and will be able to access their funds in a number of ways.

The new rules may also impact how those with defined benefit (DB) pensions will seek to take their benefits at retirement. Trustees and sponsors of all workplace pensions should decide how the new flexibilities will be reflected within their pension arrangements and how best to communicate these changes to their members.

Employers also need to consider whether the Government’s ‘guidance guarantee’ will be sufficient to enable members to reach adequate decisions, or if this should be supported by scheme-specific education programmes for members reaching retirement.

Defined Benefit schemes

Amongst other things, trustees and sponsors of DB schemes should decide:

  • Do the scheme rules need to be updated to reflect the new limits for trivial commutation and small lump sums.
  • Which, if any, of the new options should be offered within the scheme to members with money purchase pots.
  • Whether the provision of Transfer Value quotations should become part of the retirement process and if so, to what extent the requirement for members to have taken independent financial advice should be supported.

    Defined Contribution schemes (trust-based)

    Trustees and sponsors of DC schemes should decide:

    • If the new options should be incorporated within the scheme. For example, members could be given the option of taking their entire pension pot as a one-off lump sum.
    • Whether the default investment strategy should be reviewed in light of the changes. Group Personal Pension Plans / contract-based arrangements

      Sponsors of contract based pension arrangements should consider:

• Whether the default investment strategy should be reviewed in light of the changes.

Next steps

The implications of the new rules are wide-ranging and should be discussed with your First Actuarial consultant as soon as possible. First Actuarial can:

  • Help trustees and sponsors understand the implications of the options available.
  • Design suitable member communications to reflect the strategy that is adopted.
  • Assist with a review of the investment strategy for the scheme.
  • Provide financial education sessions to support members in their retirement planning.

It’s the last point that is perhaps the most interesting. It suggests that an employer should engage, educate and empower staff to take sensible decisions for themselves.

In offering financial education, an employer is sharing the information they have , with the people who will be taking on the risk. This seems an obvious thing to do.

The provision of education may in itself not be enough – education may encourage formal advice from a professional adviser, just as sixth form colleges encourage higher education.

But what should people actually do with their money?

There’s only so much time , energy and money people will spend on financial planning. People want answers to the simple question – what should I do.

Put simply, there are more questions than answers. Many of the mechanisms to unlock the pension freedoms are still to be built. People may want their money now but decisions taken in haste, can be repented at leisure.

As I have mentioned repeatedly, frustration that leads to people cashing out pension pots, could be extremely destructive. People will find the money they have liberated reduced by tax and they will struggle to reinvest with the same efficiency as had they kept money where it was.

With a potential £6bn of new money available to the over 55s in two months time, worse predators than the tax-man will be swimming around. The sharks who prey on the ill-educated and easily led, will undoubtedly be liberating pension cash into a multiplicity of plausible scams.


Frustration and short-term expediency are the enemy

But this frustration will increase unless we come up with new products that enable people to manage their retirement monies more efficiently.

“Wait and see..” may work for now

For employers preparing for the new world after April 2015, the best that can be done is to protect staff from their worst instincts and wait until new solutions appear.

The cost of employing financial experts who act with integrity and advise with independence is relatively small relative to the cost of employees making foolish decisions.

But the wait must be rewarded

I hope that within a year, we will see new options emerging, some using the existing framework of DC and DB rules and some using the new DA pensions such as CDC.

They have not appeared to date and until they do, employers should keep their staff informed, help them to avoid disastrous decisions and prepare them for the years ahead when investments , not work, will be their primary means of getting paid.



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All I want is easy access (baby)!

solid gold

Easy Action

When Marc Bolan wrote Solid Gold Easy Action in 1972, it was a smash hit , I was ten and I spent my savings to buy it

But I can’t get no satisfaction
All I want is easy action, baby

If the Treasury wanted a theme tune for Pension Freedoms they could do worse.

Sadly we are not singing about easy action , or easy access and what we are going to get in a couple of months is not going to be solid gold.

In a meeting with an (ahem) leading assurer yesterday, I asked what the service standard would be for a withdrawal from my personal pension bank account.

I could have the money, I was told, within three days.

Apparently this is in line with standard practice for the payment of trivial commutation.

The insurance industry just don’t get what the public want. Just like the banks that couldn’t get that people wanted to bank how they wanted when they wanted.

I got laughed at for suggesting that insurers should aspire to pay pension cash on demand

How much do I know
To talk out of turn
You might say that I’m young
You might say I’m unlearned
But there’s one thing I know
Though I’m younger than you
That even Jesus would never
Forgive what you do.

It took First Direct and now Metro Bank to disrupt decades of poor customer service and it will take an equally innovative and customer focussed pension provider to shake the insurers up!

metro 2

In sub-saharan Africa, they’re doing away with banks. 90% of non cash payments in Kenya are paid from mobile to mobile. In a recent study by McKinsey, the rest of us were asked to wake up and smell the Kenyan coffee.

When you phone First Direct to make a payment or check at payment has been received , you are asked if that is what you wanted and if there’s anything else they can do.

That attitude inspires the next call, sometimes I phone First Direct to get a boost in the morning!


That’s easy action! And easy access is not three working days. It is quite possible for insurers to use  liquidity in their pension process to advance payments against the sale of units and reconcile the payments the following day, meaning people have the money they want in their bank account when they want it.

The Slider

It is absolutely not good enough for pension providers to point to ISAs and say that it’s just the same there, that’s not the point, the ISA is not a flow of payments, it’s something you build cash up in!

When I sold pensions in 1980s I sold the dream of solid gold easy action – of a vast reservoir of capital that my client could draw on when they wanted. I was a visionary (I didn’t understand you had to annuitise!)

Fortunately, the friends I sold pensions to in those days won’t have to annuities and while they may not have vast reservoirs, many have built up tidy sums in their pensions, which they are understandably keen to spend.

The psychological advantage of knowing that if all else fails, you can draw against your pension from a click of the keyboard or the touch of a phone will be a great comfort to many.

The pension provider who wakes up to the idea of a pension making people feel good (not bad) will be a winner!

Solid gold 3

What a downer!

Instead of all this positive stuff, we are all insistent on running down pension freedoms as if they weren’t gold but radioactive uranium

Take this story in the FT . If the link works, you can read yourself how a plethora of pension people are warning how some people will pay too much tax on lump sum withdrawals which are treated as regular payment by HMRC. The tax will get paid back when HMRC discover the big payment was a one off.

The recent meetings of the pension select committee have been dominated of late by demands for “second lines of defence” against pension same, reckless pension expenditure and ill or non advised tax-planning.

But there have been no stories from the insurers or mastertrusts of solid gold – easy action. Instead we have had consultations, conferences and a long line of reasons why it is not possible to pay people their money in the way people want.

Born to Boogie?

Forget Kenya, forget McKinsey, we are a first world country and we can’t do a same day transfer of people’s funds from the sale of units to someone’s bank account.

Frankly this is not good enough. I know of European administrators who can and will facilitate this. Today I am speaking with a well-funded start up keen to adopt the service standards pioneered in sub-Saharan Africa so that people can paid on demand in the UK.

I can’t get no satisfaction , all I want is easy access, baby..


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When independence becomes “inter-dependence”

barnett AE

This blog addresses  Barnett Waddingham on its AE Solution . For those not familiar with these things- it is a packaged solution that provides you with Standard Life’s Good to Go workplace pension. I have written about Good to Go which is available from as are thirteen comparable plans – all of which are worthy an employer’s attention. As I say on here Good to Go is a good option

I have previously criticised these preferred partner deals.  The £5,000 + it costs to employ Barnett Waddingham makes Standard Life’s proposition not  quite so good to go

But the real issue is that the one solution stop takes “employer engagement” out of the equation.In the final analysis, employers decide the workplace pension their staff use for auto-enrolment not advisers.

It is like paying £5,000 to a priest to absolve you for future sins!


Frankly I would expect an independent actuarial consultancy to be more ambitious than to throw its hat in with a single insurer.

ralph logo

Eye on the prize


I am confused by why Barnett Waddingham want to tie their proposition to the Standard Life mast. their eye is on a prize but it it at the top of the mountain?

But that confusion is nothing to what I now feel when opening my digital  in Corporate Adviser to read that Pitman Trustees have just appointed Barnett Waddingham to be the independent investment consultant to Standard Life’s various mastertrusts.


A helping hand?


So what bit of the word independent can Barnett Waddingham claim to own?

No doubt they will argue that what happens on the investment consulting side of the Chinese Wall has nothing to do with what happens on the AE consulting side and that they were selected by Pitmans for Standard Life Trustees not by Standard Life themselves.

But as Leonard Cohen sings,

“Ring the bells that still can ring

Forget your perfect offering

There is a crack, a crack, a crack in everything –

That’s how the light gets in”.

The crack in this is as wide as it gets and I do not like what the light reveals.

The relationship between a product distributor and a product manufacturer must be transparent. If it is not transparent, then trust is lost and trust in pensions is easy to lose and hard to regain.

I cannot see how Barnett Waddingham can have a strategic alliance with Standard Life as a key distributor and be the independent investment adviser to its master trust.

The relationship is not independent – it is inter-dependent. The conflicts that inter-dependency creates could and should be avoided. I do not welcome this appointment.


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Why we will have to wait for our freedom.

target pensions

A prospect of market failure

The sentence may have been over-turned but the prisoner is not free. At best he can wander the prison yard but the prison gates remain locked and even when they open , the pension will struggle to reintegrate with everyday finance.

Such is the Pension Plowman’s short-term forecast; a forecast of market failure like the early days following the last pension revolution, the introduction of the personal pension in 1987.


Innovation in all the wrong places

Yes we have innovation, but it’s in all the wrong places. Channel 4’s Dispatches, aired last night painted a picture where imaginative scams sold to  an unwary public, scams as diverse as the freehold of parking lots in Dubai and the rental of storage in London. These are tangible assets which everyday people can understand, assets, like time-share that have a high initial attraction but a short shelf life.

I once met an Egyptian who tried to sell me farming land – ideal for the growth of water melons in Abu Simbel. The melons would have been very wet, the land was 300m under Lake Aswam and had not been cultivated for decades.



No sign of investment in the right places

We are entering a period of mass empowerment, made possible by the internet. If your radiator goes wrong, go to YouTube. Everything from window boxes to Cash ISAs can be purchased quicker and cheaper on the internet.

But the empowerment to digital guidance has been slow to touch pensions. Moving a the pace of an occupational Trustee Board, members of defined benefit pension schemes await annual pension statements dropped through the letter box. DC schemes can be managed online so long as you are prepared to navigate clunky websites past pages of risk warnings, password verifications and overly complicated screens of information. The user experience is a poor third to compliance and data security. With a few honourable exceptions, touchscreen applications do not get a look in.

The vision of an ATM which not only can tell you your pension balance but can provide you with cash for immediate spending seems as far off as ever.

Rather than build pension dashboards that allow people to assess their life expectancy, the chances of their money running out and monitor the progress of investments, the leading pension providers are still in thrall to regulated advisers. The comfort of advised drawdown where risk is transferred to advisers is proving too strong for many insurers. Empowerment is not improving, pension management remains a closed shop.


No sign of new products

Chris Noon of Hymans Robertson, a regular on these pages, has predicted that £6bn of pension money will be walking out of the prison gates in the second quarter of 2015.

Explaining the £6billion figure, Noon split it into three: the usual £10-15billion of retirement money will be taken out faster than before due to the relative unpopularity of annuities; around 5 per cent of the £100billion of available money in pension pots will be withdrawn ahead of retirement; and some people in final salary schemes will transfer out to get their hands on savings early. (Tanya Graham – this is Money)

But the products being developed to receive this money are not right. Put aside the abysmal scams, the master trusts being launched by actuarial consultancies and IFAs are simply not capable of taking the money.

The regulations only allow money to transfer into a master trust if your employer is participating. As mentioned in this blog employers want to signpost but separate. The master trust retains the link with the employer and is not fit for the purpose of freeing the pension

The only current alternative is a personal pension  (or as people insist on calling them, as self-invested personal pension). Most people do not want to self invest, most people want a simple investment strategy which makes sense; they want a trusted investment manager and they want to get on with their lives.

But the cost of operating a personal pension (relative to the cost of a master trust) are proving a further barrier to change. While existing insurers are sitting on their existing book of business and trusting the advisers, the new personal pension providers are nowhere to be seen. We know, we have approached them and they tell us that the costs, in terms of Solvency II reserving, make running personal pensions too risky a prospect.

So the five options presenting themselves all look pretty rum

  1. Take your money out of jail- invest as you like – but pay big tax
  2. Try to take money to a master trust – and see if your employer will help out
  3. Transfer a new personal pension drawdown option (Alliance Bernstein’s retirement bridge being the one option).
  4. Keep your money with your existing pension provider and hope that they offer you something better in time.
  5. If you have the money (and many advisers will be blunt with you if you haven’t) pay the costs of advised drawdown.

The obvious alternative

To break with the past and offer a new future for pensions money, we need a new option as radical as personal pensions were in 1987. I do not see the alternative in the employer sponsored master trust nor in the isolation of a personal pension but in a new pooling vehicle where the structure is governed by the Regulator (FCA/tPR), where investment funds can be managed for the consumer not the manager and where every day people have the rights to their pension property which was the great innovation of the 1987 reforms.

Whether we call these new structures CDC or ROFs or something new, they need to be made available within the next twelve months. Critically, the reserving costs of such arrangements must be low, the access to such vehicles must be universal and the outcomes be determined by a consensus of stakeholders including the fund owners – the Regulator- fund managers and the members.

Critically, we must break the dependency on employers and advisers which has dominated the design of DC product in the past 30 years. Employers want nothing to do with the spending and investment decisions of their former employees, advisers should be an option not a necessity.

Will this happen?

It is only the Government than create these new structures. They have created one already (the PPF), NEST could convert to one, though I think it is working well in the accumulation phase and is better creating one. Insurance Companies, Fund Managers, even Advisers, could be managers of these collective arrangements (though most likely it would take partnerships between all three to deliver.

When we get these structures in place, then the fancy member interfaces can flourish. People will be able to control how they take money and have the same access to information as I have with my First Direct Bank Account.

This will only happen with leadership. Sadly, the man who has led us for five years may not lead us beyond April. He has left a legacy within the Pension Schemes Bill which should be enacted this parliamentary term, for the vehicles we need to be put in place.

Let us hope that before April 2020, we will be enjoying the pension freedoms with confidence in our pensions restored.



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Get your BR19 as your first step to being “Pension Wise”

Pension Wise

Treasury now in charge of “Pension Wisdom”.

Another Monday, another set of pension headlines. The Treasury announce that the Guidance Guarantee is no more and hereafter the delivery mechanism for the help we’ll be getting at retirement will be called “Pension Wise: Your money. Your choice”.

A very political slogan which the Treasury regard as their brand.

You can register at  to get on the fast track for pension guidance.  But woe betide you if you brand yourself “pension wise” or offer to make anyone “pension wise ” (unless of course you are not on the Treasury’s approved supplier list.

The Pension Plowman speaks advisedly. I am not pension wise, never have been- never will be. I’m just plowing my furrow (Paul Lewis is my compliance officer)

Hargreaves Lansdowne publish important research to make us pension ****.

Meanwhile Tom McPhail has managed to steal some of the Treasury’s thunder by releasing research from a freedom of information request that suggests 2m of us retiring between 2016 and 20120 won’t get the full state pension.

(Presumably this is not being “pensions wise” because Tom was wise before the event -the Treasury news being embargoed!)

Tom’s news is not a surprise for those “in the know” because they applied for a BR19 from the DWP telling them their likely entitlement under the old rules. Going forward there will be new rules which won’t likely give much more than the old rules as the new state pension won’t cost much more than the old two tier structure of Basic State Pension and Second State Pension.

What will happen is that a COD (contracting out deduction) will reduce your full entitlement if you were in a contracted out occupational pension scheme, elected to contract out using a personal pension or did not pay your full national insurance (class 4 contributions) because you were self-employed .

The old basic state pension was £115 pw+ and the new system is £155 pw – and most people will be somewhere in the middle. The hope is that as more people pay full rate national insurance for longer , more people will get the full £155.

Those people who are getting considerably less than £155 pw from 2016 may have an incomplete NI record because of time living abroad and here the complicated rules about transferability of pension rights between countries kicks in.

Why is all this important? Well there are 52 weeks in a year making £155pw worth just over £8000pa. To buy an annuity that increases like the state pension you would need a personal pension pot of around £215,000 which (I suspect) rather dwarfs the value of your personal pensions (average pot today around £30,000).

Being Pension Wise means knowing the value of your options

If you went into the Pension Antiques roadshow with your personal pension in one hand and your state pension in another , you might be surprised to have your (full) state pension valued (typically) at seven times the value of your private pension.

Which is why Hargreaves Lansdowne’s piece of research is actually rather more important than Pension Wise. Well done Tom Mcphail for your impeccable timing!

Being Pension Stupid means taking stupid decisions which leave you pension poor

Ironically , it is because we don’t understand the value of the various types of pensions that we take foolish decisions. Self-employed people are not taught that the reduced rate national insurance contributions they pay, come at the cost of reduced state pension and they have no idea of the value of the state pension they have given up.

Many people who contracted out into state pensions , remained contracted out well beyond the point where it was economically viable for them to do so. Only when they retire will they be able to compare the value of their rebate only personal pension with the Contracting Out Deduction (and the comparison won’t generally favour the personal pension). Similarly older woman, who defaulted into the lower stamp, will only find the cost of this decision when they compare their pension to what they’d have got if they’d paid the man’s rate. Hopefully they will still be able to make up some or all of the difference with a special payment (on decent terms).

This pension freedom stuff is sexy but it is not the only show in town

All this complicated stuff, close to retirement is generally being ignored in the pensions debate. Even in Tom’s statements on the radio this morning, the main thrust was about the importance of the decision about what to do with the personal pension money.

I have yet to hear any adviser suggest that one of the best uses for tax-free cash (arising today) is to purchase basic state pension for tomorrow (if you are close to your state retirement age).

There is of course an issue here, it is a further part of the problems with pensions advice. No one is getting paid for advice on state pensions because no-one is paying for individual pensions advice. Employer advice is centring (properly) on the employer’s schemes, IFAs and benefit consultants are busy guiding people into vertically integrated master trusts and SIPPs while “Pensions Wise” has an agenda to help with pension freedoms.

It will be up to TPAS and the Citizens Advice Bureaux and any other approved suppliers to inform people of options surrounding state pensions, but as with this morning’s announcements, the battle between the noise surrounding the immediate satisfaction from private pension freedom, may drown out the really important news about people’s state pensions.

Get your BR19 here

I’d urge anyone who is approaching retirement now to use the DWP’s BR19 service. It should have been an on-line service by now but it is – as manual services go, pretty quick and informative and accurate.

If you want to apply to know your state pension rights, you can do so by clicking here

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Let’s play fantasy CIO at NEST!


NEST has invited  all of us to play “fantasy CIO” and create a default investment strategy for its members to and through retirement.

If you’re prepared to get to page 118 of the consultation paper, you are asked as question 18 of the consultation…

If you were designing a default drawdown strategy for NEST members, how would you do it?

We believe such approaches will require innovation and are therefore interested in solutions that address the following issues:

governance – including setting pay-out rules

asset allocation and risk management flexibility for members

incorporation of insurance for market and longevity risk

An answer to these questions requires a great teal of time, intellectual energy and the skill and knowledge collected over a lifetime. It is reasonable to expect that NEST, with its £600 DWP loan, might have the financial resources to pay for  advice on this.

In our formal response to NEST ,which Pension PlayPen has published and sent to NEST, we stated we would not answer these questions.

But perhaps I can break ranks with the Pension PlayPen and put down my personal views here!  To be fair to NEST- the questions are the right ones, they underpin the establishment of a collective drawdown arrangement and could equally be the foundations of a CDC strategy.

So here is the Pension Plowman’s bid to be Fantasy CIO of NEST!


We need to start with a statement of investment philosophy; what are we trying to do with the money at our disposal?

Statement of investment philosophy

We aim to provide a regular income stream which targets pre-agreed payments (a target pension) and meets its target in normal circumstances. In exceptional circumstances, regular payments can be higher or lower than targeted.

We aim to provide this income for the whole of a member’s life. We will provide this insurance from within the fund if possible but members will have the opportunity to buy a guaranteed annuity to secure this certainty at any time. Members will have the right to take their money from the fund either to another qualifying pension or to their bank account.

Investment principles

We will invest the money on the basis that the fund has no end-point. Payments to members will be met from cashflows from those moving into the investment pool and from the income from the assets into which the fund is investing. Typically these assets will be equities which we intend to hold for the long term. Other income producing assets which have similar properties to equities (property for instance) may also be considered.

The fund will not aim to buy and sell its assets, its intention will be to allow the assets to provide the income to meet the objective of the fund. Because these assets participate in the real economy, we would hope that they will participate in the growth of the economy and produce an increasing income stream which will allow the target pension to increase in time. The hope is that these increases will protect people’s spending power.

We will set the level of target payments (pension) at an initial amount that we (as managers) feel confident will be too high 50% of the time and too low 50% of the time. Put another way, in a perfect world, it would be our best guess of what we could pay out.

We are expecting to be wrong 99% of the time- only one year in a hundred, might we be absolutely right. So we will ask people to accept tolerances. Providing we are 90% or more right at any time, we expect our payments to be on target, it is only when we see the fund more than 10% below or above target, that we may make an adjustment to pay-outs and even then , these adjustments will be temporary.

target pensions

Risk sharing and risk pooling

The assets of the pool are discreet to the people receiving the pension, they are not sharing the risk with those accumulating the pension. We favour a discrete pool because of our concern that those coming from behind may have to subsidise those receiving payments today. Of course the opposite may turn out to be true. In any event, we prefer not to share the risks between generations, this has caused trouble in other countries (Netherlands).

Ideally, we would hope to meet the payments for those living beyond the normal life expectancy of those within the investment pool from the funds bequeathed by those who die younger than expected. This needs to be properly explained to people joining the pool. Undoubtedly this explanation will mean that some people who have short life expectancies won’t join the pool and perhaps some with healthy lifestyles will be enthusiasts- this is unavoidable and a healthy state of affairs.

Nonetheless, there will be losers in the pooling as well as winners and we can only manage this by being quite frank about the way the pool operates.


Governance and Communication

This brings us on to the Governance of the scheme. Obviously this needs to be expert and should draw upon the investment , actuarial and communicative expertise of a high quality management team.

It is absolutely critical, that the progress of the fund – both in terms of its investment performance and in terms of the solvency from the pooling, is clearly stated so that public confidence- at all levels – is maintained.

The publication of statistics on the numbers joining the pool and leaving the pool either through death or through voluntary transfer is of critical importance. There should be no attempt to hide these numbers to protect confidence, a run on the fund is more likely to happen because of opaque governance than transparent.

This simple approach to managing the fund must not be mistaken for a naive approach. The governance of the fund must be every bit as rigorous with this simple strategy as it would be were it more complex. Attention to detail- the costs of transactions, the management of key metrics such as life expectancy and the proper accounting of the fund must be to the highest standards.

Member flexibilities

This approach is not in itself designed to give members the  flexibility of the “Pension Freedoms”.

This approach aims to provide people who want a pension with something more than they would get by selling their pot to get a guaranteed annuity. It does so by being more flexible in its payment system which allows it to invest in assets that should provide better long term returns.

People who are not happy with this “extra risk” can leave the pool and buy an annuity.

Similarly some people will want to withdraw all or some of their money to spend the money as a lump sum. The right to your property is key – people will be able to withdraw money, at reasonable notice, to spend as they please.

For many “investors” who like to choose how their money is allocated and perhaps make their own investments, this pooling approach will be too restrictive. They will either not join or leave to “go their own way”.  We anticipate these outflows will be matched by people joining the pool who have decided not to self-invest any more.

For many people, the idea of being in a pool where others may benefit from their dying early will be unacceptable. This is of course how defined benefit pension schemes work and how annuities work , but we accept that there are people who will want to manage their own longevity

Insuring the financial risks surrounding long-term care.

Finally, we are aware that for some people , the prospect of long-term care is extremely frightening and the prospect of not being able to afford to take care of oneself financially, unbearable. For such people we consider insurance the best solution. Within the payment system operated by the scheme, a deduction for long-term care will be available. This separately insured arrangement will be entirely voluntary and can be entered into by the individual as part of the pension scheme, or as a free standing arrangement arranged outside the scheme.

The invoice is in the post boys!

noisy nest


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The future of retirement – Pension PlayPen responds to NEST

nest-185x114hi res playpen


Why Pension PlayPen is responding

Pension PlayPen is reluctantly responding to NEST’s consultation; reluctantly as we have been asked these questions before in a number of different guises. The report is long and so is this response.

We are responding because NEST is important and it is taking the issues around retirement seriously. There are many providers who need to be addressing these issues more urgently than NEST, we would have preferred to have spent our time consulting with those insurers. Part of the reason for making this response, is to use it in our conversations with other providers to help them create the product that Britain’s middle-saving retirees need.

We hope that this adds something to the debate!


Some general comments on NEST

In the past, NEST has operated what Pension PlayPen has considered an inadequate “at retirement service” for its members. This has been ok since very few people have retired from NEST and we sensed that the annuity carousel they have created was a pro-tem measure. We hope that this consultation will lead to a wholesale re-vamp both of the NEST at retirement strategy and the investment strategy both in the accumulation phase and (should it wish to provide its members a means of spending their pot, in the consumption phase.

We recognise that until 2017, when NEST is allowed to receive transfers, it will, for those wishing to exercise pension freedoms, be pretty useless. Most people who have been saving into NEST will only have been doing so for a matter of months and with the cap on contributions, it is unlikely that more than a handful of people will have their primary DC savings in NEST.

So the debate we are having in 2015, is theoretical, it is not until 2017 that any meaningful sums can be transferred into NEST, nor indeed – the amounts people have saved into NEST, be transferred into another retirement savings plan to be consumed elsewhere.

Our reluctance to respond is that Pension PlayPen could more constructively be having this conversation with insurers who have large amounts in accumulation and can take transfers-in.

It has been pointed out that NEST could in time become a general aggregator into which people who had not saved with NEST could take their DC pots and use NEST’s administration and investment strategies to help them spend their money and make their money go further. For this to happen, NEST would need to change structure or the laws governing occupational trusts change. As we understand it, unless there is a change in the law to allow people to join a master-trust without their employer participating in that trust, they cannot access it. We are aware that there is an exception to this – the self-employed – who are allowed to join an accumulate savings in NEST but we are not aware they can join NEST to spend their savings.

In order for NEST to become a general aggregator to the Nation, it would have to become a Regulatory Own Fund (like the Pension Protection Fund). We think this could happen (and have said so in the past), it may well be that NEST remains a master trust to accumulate but has a separate structure – a Regulatory Own Fund structure- for decumulation. This would happen not just because of demands from consumers (fuelled by the Pension Freedoms) but because this is about the only way that a collective approach to spending (including longevity pooling) is going to work,


Changing retirement patterns

How will changing retirement patterns and provision affect what members need?

The report rightly points out that differing socio-economic groups want differing things. The question is what they need. They need enough money to keep them off the State and they want much more than that. If we are answering from the DWP’s perspective, the National Insurance Fund needs people to be self-sufficient so they do not need total reliance on state benefits. People want to have a good time, spend what they want, when they want. NEST has to work out which master it is serving, We do not see NEST as a wealth management unit- we see it as a means to protect the National Insurance Fund, so it should be aiming to give people a supplementary pension (a funded non-guaranteed version of S2P)


How will changing retirement patterns and provision affect what employers want from DC schemes in the future?

The abolition of the fixed retirement age and the increasingly lower amounts arising from DB schemes, mean that employers will in future have to promote DC savings as the insurance people have when they choose to leave work when they want to wind down. The temptation for employers will be to overplay the short term (“you’ll be fine – look at all that money!”) and play down the longer term when failing health and spent savings are not so attractive.


Financial circumstances in retirement

We agree with the trends identified in this chapter. Our sister company, First Actuarial is involved in Financial Education in the workplace. It provides holistic education, helping employees to bring together the resources from private savings (including equity in property), DB (including state) and DC benefits.

Increasingly this work is involving the use of Digital Guidance (what elsewhere has been called a pension dashboard). Increasingly we see digital tools helping people to model their financial futures based on learnings about inflation, investment returns, the liabilities of house ownership, of day to day living and the unknowns- long term care needs and dependency in extreme old age.

We cannot foresee any changes to these trends but we recognise that change is constant, we need a flexible approach to meet changing needs and DC design must help people to take control of their retirement wealth- better.


What conclusion s should be drawn from the evidence on spending and what else needs to be considered.

The chapter is very good. The central conclusion that people do not spend differently because they are retired is obvious but needs to be said. The problem is that we assume that because people have less chance of generating income from work, we must guarantee income from their saving. As the chapter suggests some people are hoarders and never spend to their means, some are profligate and over spend but most people are money saving experts who spend to their means, budget and plan.

For all three groups there are different answers. Those who want a high degree of certainty will look at guaranteed income solutions and more carefree people will avoid such solutions (and probably run out of money. People in the middle will accept a degree of uncertainty in a trade-off that has upside in greater returns on saving.

Financial Planners tell us that most people place themselves in the middle.

There is a further consideration, extreme poverty among people who have no rights to anything. These are people- often immigrants – who have little right to a state pension here or from elsewhere for whom we – as a society – have an obligation to keep from extreme hardship. It concerns us that their savings in NEST may be their only savings and that they are to be treated as the vast majority (despite their differing circumstances). We have read little about this group and know little about their spending patterns. Since NEST has probably a large number of such people on its books, we think it should spend time looking at their special needs.

We would welcome money spent by the DWP understanding the needs of this group and are glad that the consultation addresses this issue,


How can DC design align itself to general spending patterns?

Given that most people fall in the middle and are prepared to accept some risk (e.g. lower levels of guarantee) for more reward, collective solutions seem sensible. We know that there is a herd mentality to saving from the high take up of default options. This is not stupid- there is wisdom in the crowd. Similarly there is likely to be a default position which most people would accept, in terms of risk and reward in the investment of monies in decumulation.

We think that the problem with the old system was it channelled people towards an extreme position- the guaranteed annuity – which people rejected. We think the other extreme- absolute freedom – is equally unappealing. What needs to emerge is a collective approach that provides people with more income, better property rights in exchange for the loss of absolute certainty.


How are savers likely to act under the new freedoms?

As the report says, people can express their preferences but we should be wary of predicting their behaviour. Given most people have a poor understanding of how long they’ll live, how long their money will last, the risks of taking income from a volatile investment and the costs of the unexpected (long term care from incapacity), there is a strong argument not to give people any freedom.

There needs to be a guided path that meets the needs of most people- a default solution around which those who do not know what they want can gather. Extreme solutions (annuities and bank accounts) exist, but what savers are looking for is the middle way. Behaviours will be shaped by the emergence of that middle way. The middle way will not emerge organically for many years. Speaking recently with Mark Hoban MP, he talked of a “five or ten year bloodbath of failure” to get there.

In order for a middle way to emerge, leadership needs to be shown. People will respond to strong leadership from people who they trust – Martin and Paul Lewis, Steve Webb, Ros Altmann- to name a few. NEST can also show leadership by getting it right.


Member behaviour risks that providers need to manage

We have just said there needs to be leadership. This needs to be shown not just by NEST but by other providers. The bias that is most prevalent in people’s saving patterns is created by advice. Financial advisers do not generally give independent advice. The advice is skewed to suit their purposes. Typically they recommend solutions that earn them money and only recommend solutions like NEST- when there is no money to be earned by alternative strategies.

But IFAs show leadership, they are great influencers/salespeople. In the absence of leadership elsewhere, people will follow what leaders tell them to do- even when it is not in their best interest to do so.

Providers are conflicted. IFAs are their distributors and they can no longer treat them as their agents. Infact providers bend over backwards to please advisers so that they are not liable for the advice but see their products getting used.

The only way for this cycle of poor behaviours to be broken is for new leaders to emerge who promote product that is genuinely unbiased and is in the best interests of the consumer.

This delicate balance between letting a consensus default emerge organically and showing leadership to stop a blood bath of biased advice (not to mention scams) is one that we need to achieve in 2015. Otherwise we will fall back into chaos as we did in the years following the last great change- the introduction of personal pensions in 1987.


Member behaviour risks needing to be managed

A mark of leadership is strength of conviction and “good leadership” needs to have conviction for the right reasons. NEST has not always shown conviction in its behaviour. The wretched decision to pander to political pressure and introduce an investment strategy for young savers that focussed on low volatility is such an example. Here good sense lost out to political show-boating. There was no evidence that people would have jumped out of NEST if they’d been exposed to volatility when young and there still isn’t.

This is relevant to this argument. What people want (as has been observed in the consultation) is everything. They want guarantees of high growth and the opportunity to take money how they want when they want. They want inflation protection and they’d like protection for spouses and dependents too. But they know as well as we do, that you can’t have it all. Leadership is needed to help them understand that. Leadership is needed- as with the construction of accumulation defaults – to manage the risks of “present bias” and “certainty bias” as well as the hosts of risks associated with running a growth strategy for people in the early years of retirement.

If providers are not prepared to be showing leadership and managing these risks, they are not doing their (well paid) jobs. By “Providers” we mean the owners of master trusts, insurance companies, trustees, IGCs and advisers who are vertically integrated into these roles.


Other risks (than those listed) in managing funds in retirement

There is a general risk for all providers and trustees which is not spelt out. It is the risk of them getting it wrong (“fuck up risk” as we call it). This risk is associated with trust. If a football team plays badly and the manager is trusted, he can explain why things went wrong, take the blame and come out stronger. So long as it doesn’t happen again and again when people lose trust. If things go wrong and the manager is seen to blame someone else, then trust can easily be lost.

What is important is accountability. Much of the distrust of financial services has resulted in people saying things, those things not happening and there being no one left to take account. Even worse, the blame has been passed from place to place to the infuriation of the public.

The risk I’d add to the list is “accountability”, if the public sees another financial product with no one accountable for its delivery, they will walk away. It is again a matter of leadership.


What gets engagement for DC Savers?

We should not despair! Millions tune in to watch Martin Lewis has a prime-time TV slot, millions use his web-site. People are not lazy about money, they just want to deal with people who are on their side.

Martin Lewis has proved it can be done. Alvin Hall proved it could be done at Morrisions, First Actuarial prove it can be done.

Key to getting people to believe you are on their side is to demonstrate independence and integrity. Also key is to be funny (engaging) and relevant (content and delivery).

Many people under the age of 30 do not even watch TV anymore, all their engagement with information is through a phone or tablet or laptop. Even at school they are learning more from the websites they are directed to than they are in class.

These kids are the retirees of 2065 but those retiring now have different ways of engaging. The trusted source of information is the workplace and if it’s not the workplace, it’s a providers. Because at least employers and insurance companies are going to be around in a few years’ time and the people who you talk to who are working for such institutions are taken to have independence and integrity.

TPAS has a similar reputation, a reputation which will hopefully be enhanced by its delivering the guidance guarantee.

But all generations are learning to use technology in one way or another and the techniques by which people engage with Candy Crush should tell us how we can get engagement with DC. Gamification is popular because it rewards people instantly for the tiny steps (moving from screen to screen etc.). Social media is engaging as it allows people to shout about their minor triumphs (“I’ve just beaten Barcelona on FIFA”).

For people to be able to engage with their DC pensions, they are going to have to be as accessible as CandyCrush or Twitter and they are going to have to compete with them for their time and attention.

We live in a digital age where TV is already old-fashioned, the idea that we will be learning from what drops through our letter boxes in ten year’s time is an odd one. Already some of us are more likely to open an email than a letter.


How can we help mitigate the risks of cognitive decline among the oldest?

It is helpful sometimes for providers of financial services to take a step back. Car manufacturers are not responsible for the use of cars by those too old to drive.

The responsibility for the financial decisions of those in cognitive decline passes within a family to the person fittest to act under a power of attorney. If there is no-one to do this, then a lawyer is generally appointed. In extreme cases, there is no one, in which case there is only the social services provided by the State.

Lock down of financial products in later age is sensible. Many will buy an annuity when they feel they can no longer be bothered or able to manage drawdown. Many will never consider themselves cognitively able to manage their freedoms and opt for a collective or guaranteed solution (the point of the DA agenda).

So long as the option to lock down into an annuity or transfer into a collective decumulation scheme is there, we should do no more (as providers). At this point our social duties towards the truly elderly need to take over.


What is the role of default strategies in the new regime?

Default strategies perform the same role in the new world as they did in the old – they are how Providers show leadership to those who are unable or unwilling to lead themselves.


Should we have more than one default?

By definition there can only be one default – most people use it. There can be a number of core strategies that suit different types of people and they can lead to different places – cashing out- guarantee purchase- pure equity drawdown etc..

However the point of a default is to pave the way for most people and most people do not want to be confused by “different types of most people”. If we had a system of financial guidance that worked like the NHS so that people did what they were told, we could have triage. But we don’t.

We don’t get people to form into orderly queues based on market segmentation and so there can only be one default, the rest is down to choice.


A default retirement age?

Most people like order in their life. They want break points which are given to them. So they know when to go to school, when to go to college, get a job, retire…the only one that they won’t know is death.

There is nothing wrong with this. There’s nothing wrong with a state retirement age so long as people know it’s a guide to behaviour not a social imperative. Most people know it’s their life and not the Government’s and those who simply want to be told when to retire are discovering that isn’t happening any more.

So the concept of a default retirement age will decline in time, unless there is another change in the rotation of these things (which is quite likely). We can only plan for what we know today and we have a default retirement age – let’s keep using it.

As said above,let’s try to stick to the one default!


Should purchasing an annuity income be part of retirement planning?

We purchase annuity income every time we pay national insurance, this is nothing special. The issue is whether we should be forced to exchange our retirement savings for retirement income. Until recently the answer was yes. At the budget, the Chancellor changed that so no one needed to buy an annuity or even have drawdown as income.

We are where we are and international comparisons are not that helpful. We simply want to accept the rules have changed and show leadership in creating a new structure which ultimately will be determined by freedom of choice among those retiring.


Fixed term, iterative purchase and phased annuities?

These are choices, helpful choices- that will appeal to some, but they are not the main event. Those wishing to explore these choices should be able to do so, either by internet shopping or via an adviser. The most that a scheme like NEST can do, is to make people aware of their existence, their purpose and where people can find out more about them.

Frankly there is not time in a Guidance Guarantee session to look at this detail of choice, these need to be searched for.


Deferred annuities?

The problems with deferred annuities were properly demonstrated with the demise of the Equitable Life. If a deferred annuity market emerges, it will be because of demand but we have seen no demand for long term care products (which are generally based on deferred annuities) and unless there is a change in consumer behaviours, we see deferred annuities as having a very limited market.


Other ways for member to hedge longevity risk?

Members can choose to hedge longevity risk by joining a longevity pool,, currently no such pools exist but they could create themselves if we create Collective DC schemes into which people transfer their DC pots.


Does investing through retirement have advantages?

For the average person, a strategy that provides a decent balance between growth and security is sensible. Growth comes from investment, security from insurance. Purchasing insurance for upwards of 30 years (which is the aim of an annuity) is not what most people want to do or need to do. The uncertainty of income in their working life is substantial, it is unreasonable to suppose that at the point of retirement they turn totally risk-averse.

The long term advantages of a growth strategy underpinning retirement income include the steady income stream available from real assets (property and equities), linking the retirement income stream to GDP (what underpins long-term property and equity income growth) and the avoidance of political interference that can artificially depress the debt market (see QE).

For those totally risk averse, the option of the annuity is always there as is the option to spend your pot (the other extreme). We would argue that the default option should be invested for the future.


Ideas for designing a default drawdown strategy for NEST

NEST is a commercial organisation that competes in the market with other providers. It is not appropriate for it to expect consultants to provide this service gratis. If NEST wants advice on how to design its default, it should pay for it.


Risk Sharing

NEST should not consider sharing risks between those currently saving for retirement and future generations of savers. It should consider offering those who arrive at retirement, the option for them to pool investment risk and have their assets managed collectively.


Combining risk sharing and normal DC

It would not be a bad idea for NEST to set up a separate CDC scheme for employers who wanted to operate their workplace pension as a CDC plan though we think that most employers would still work within the DC framework. We think that CDC is more likely to be popular as an in retirement option with people transferring DC benefits into a pool at retirement.

People are rightly nervous about the risks of risk-sharing between generations and for that reason, employers will be concerned about their use as the default workplace option.





Henry Tapper

January 10th 2015












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Technology – not short-cuts – points the way to good pensions.


Pension Providers are challenged by later-stage auto-enrolment

Let’s be under no illusions. The scale of the challenge facing workplace pension providers from auto-enrolment in 2016 is every bit as daunting for them as the challenge to payroll , advisers and employers.

The challenge is not about product. The products available from the leading pension providers are vastly improved from the options we considered back in 2010 at the time of the Johnson/Boulding/Yeandle review.

  1. Competition has improved, NEST, NOW and People’s Pension and a host of smaller master trusts have changed the game.
  2. Pricing has improved. The cost of ownership for members has fallen dramatically.
  3. Fairness has improved. The abolition of AMDs and restrictions on member borne charges to pay for non-investment matters has made pensions fairer.

But problems remain with Distribution and Implementation – Sales and Sign-up.



The problem with distribution is about provider visibility.  Take this week’s headline from NOW


Well that’s another 16,000 of the 1.2m employers taken care of then…

I’m not so sure. The press release has the NFRN’s Paul Baxter stating

All we ask is that retailers find out their staging date by visiting The Pension Regulator’s website and inputting their PAYE reference number. They can then sign up with NOW: Pensions in a matter of minutes via its website.” 

On the face of it, this is a win-win. The NFRN promote awareness and the issues for employers involve a few clicks with a mouse – that’s “ALL WE ASK”.

The problems with short-cuts

There are a number of problems with this;

  1. The newsagents of Great Britain are not a homogenous group and their requirements for a workplace pension will be diverse. A one size fits all approach assumes the opposite.
  2. The employees of these newsagents, soon to glory in being entitled, eligible and non-eligible workers are not a homogenous group and may wonder who Paul Baxter is to have made decided upon the pension on which his or her later life finances depend.
  3. By simplifying choice to a default of one – NOW pensions- NOW and the NFRN are cutting off the air supply at birth to this new baby.

This third point suggests that there is something at best unethical and at worst uncompliant with the NOW/NFRN approach.

This is what the Regulator has to say to employers choosing a workplace pension

It is important that the scheme you choose is well run, offers good value for money for you and your staff and that it will work with the payroll process or software you’re using, so allow plenty of time to make sure you make the right choice.

Let’s remind ourselves of the advice of NFRN to its 16,000 small businesses.

All we ask is that retailers find out their staging date by visiting The Pension Regulator’s website and inputting their PAYE reference number. They can then sign up with NOW: Pensions in a matter of minutes via its website.” 

One of Steve Webb’s favourite phrases is that “we should allow in our garden a thousand flowers to bloom”. The Distribution of workplace pensions will not be sorted by premature defaults. We need to find a way to allow employers to choose on the basis laid out by the Pension Regulator.

Sign- up

The Press Release touches on the second major problem for providers, namely the transfer of data from a company into the Provider at “sign up”.

Providers call this the problem of implementation, installation or simply “scheme set up”.

This is no easy process, the data is not in one place, Provider’s need information from a number of sources including payroll, HR and the static data about the employer (address, registration no etc).

Where the numbers of employers making applications can be numbered in tens or even low hundreds a month, this can be sorted manually, but as NOW rightly point out, the solution from 2016 when applications are likely to spike exponentially requires an online process.

The employer is not just being asked to “sign up”, they are being asked a number of questions about what they sign up for.

  • Are they going to contribute from staging or use postponement?
  • Which  contribution definitions do they want to choose?
  • Will they use salary sacrifice/exchange?

Are these decisions to be defaulted – and why?


Due diligence and a duty of care?

Is it too much to ask employers to conduct some due diligence into a decision they are taking, the consequences of which will last for as long as the business (and for staff as long as they live?


There is a technology solution and you can access it today

The answer to the problems that these deals create is technology. It is possible to take employers on a digital journey that allows them to;-

  1. Digitally assess their workforce using live pension information
  2. Model contribution structures (including postponement, phasing and salary sacrifice)
  3. Collect the data needed to make an application and digitally apply to all workplace pension providers in the market
  4. Compare the offers made by those providers as the Pension Regulator asks them to
  5. Document the decision taken with the assistance of ratings on the key metrics
  6. Complete the application process digitally using the data already collected.

All this need not take days, it can be done in hours, most of it can be done in minutes.

It can be done using which of course provides a deep analysis of NOW Pensions as it does the other mastertrusts as it does the insurance companies and even the more obscure SIPP providers who may offer a non-insured workplace pension that qualifies for auto-enrolment.

Most employers will not explore SIPPs or Corporate wraps or be interested in whether a provider will allow adviser charging. Nor will they be interested in scheme aggregation or pot follows member. These are advanced features of a pension advisory service that suit the needs of the few.

But all employers should be interested in the fit of their workplace pension with their payroll system, the rating of the investments, the way the provider looks after older workers and the costs borne by both the employers and staff. They should be interested in the support given to staff both initially and going forward. They should be interested in whether the provider is likely to be around for the long-term.


Bulk deals are bad news – we do not need to default.

Since there is capacity to do all this and to do this at a minimal price, I see no reason for bulk deals.

Indeed I see the kind of defaulting going on as standing in the way of proper engagement by employer and member in what they are purchasing.

I am not accusing NOW pensions or the NFRN of any illegality. I am sure that this deal is being done with the best of intentions. But it is the wrong deal. The deal should be to promote choice in the market and the Pension Regulator, the pension providers and all intermediaries should be looking to technology to provide proper answers and not short-cuts.


Use to choose the workplace pension

We at will continue to campaign for proper choice in the market.

We are spending the revenues we are receiving from larger employers to improve the service so that the cost to small employers trend to zero.

If you are an intermediary, whether a payroll agent , financial adviser or accountant and would like to offer your clients choice, please go here


If you are an employer and you want to choose a pension properly , please go here


Playpen home


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Excellent election digest from Age UK


With the general election fast approaching on 7th May 2015, it’s time to decide which party you will soon be voting for. Many of you may have already decided, but for those who are still unsure, we have looked into the varying policies and have delved deeper into the pledges made by each party about healthcare and pensions, to help those who may be relying on digital hearing aids in later life. Read our summary of how they could affect you below.


Currently in power as part of the coalition government, Prime Minister David Cameron and the Conservative Party are now hoping for a second term. Their key priorities are to:

  • eliminate the deficit
  • cut taxes by raising basic and higher rate starting points
  • help those looking to become home owners and live independently in retirement
  • provide an education system to ensure children reach their potential

With regards to health and care, the Conservatives are pledging to increase spending on the NHS each year, as well as recruit and train 5,000 more GPs, with GP surgeries opening seven days a week by 2020. They also hope that each NHS patient will be assigned a named GP.

The triple lock will be maintained on state pensions, and universal pensioner’s benefits such as a free bus pass, TV license and Winter Fuel Payments will be protected. Those with savings will also be rewarded with the introduction of a new single-tier pension, and people will be given the freedom to invest and spend their pension as they wish.


Often considered the Conservative’s biggest threat, Labour were previously in power before the coalition government was introduced in 2010. The party’s main pledges include:

  • cutting the deficit each year with no borrowing from manifesto commitments
  • making it illegal for employers to exploit migrants and undercut British workers
  • providing an extra £2.5 billion funding for the NHS
  • freezing energy bills until 2017

On top of the funding they hope to provide to the NHS, Labour are also expecting to repeal the Health and Social Care Act 2012, integrate council-run social care and NHS health care services, and put an end to 15-minute care visits.

Pension charges will be capped in order to force full transparency, with the triple lock maintained. Tax relief on pensions for wealthier savers will also be cut, and all savers will be referred to an independent broker so that they get the best deal for them.

Liberal Democrats

Liberal Democrats form part of the current coalition government, and their key priorities going forwards are:

  • balancing the budget by making cuts and taxing higher earners
  • raise the tax free allowance to £12,500
  • guarantee more education funding
  • invest £8 billion in the NHS
  • protect nature and fight climate change

On top of the £8 billion funding each year for the NHS by 2020, it will also receive an extra £1 billion a year until 2018. This will be alongside integrating health and social care budgets, and added funding for mental health. The Liberal Democrats also hope to decrease the waiting times experienced by those diagnosed with mental health.

Again, the triple lock has been pledged to be kept on pensions, with the single-tier pension to be completely introduced. Pensioners on the 40 per cent income tax rate would have their Winter Fuel Payment and free TV Licenses scrapped, although the free bus pass would still be kept by all pensioners.


The UK Independence Party’s key aim is to withdraw from the European Union, but its other priorities include:

  • control of immigration
  • remove tax on the minimum wage
  • provide an extra £3 billion per year for the NHS
  • introduce a power for voters to recall MPs

The added funding given to the NHS will be paid for by savings from leaving the EU, with social care also being granted £1 billion per year. UKIP plan to keep the NHS free at the point of use and will keep GP surgeries open to the public on at least one evening weeknight.

As for pensions, UKIP pledges to stop increasing the retirement age and will provide dedicated annuities advice.


The main pledges made by the Green Party include to:

  • aim for publicly funded and provided health service which is free at the point of use
  • end austerity
  • create jobs which pay at least a living wage
  • build 500,000 social rented homes by 2020.

The party also hopes to work with other countries in order to make sure that global temperatures do not rise by more than 2°C.

Alongside the NHS pledge made above, an end to the privatisation of the NHS would be enforced, and the Health and Social Care Act 2012 would be repealed. Social care would be provided for free if needed, and more priority would be given to mental health.

With regards to pensions, the Green Party hopes to introduce a Citizen’s Pension, which would be linked to rises in average earnings, meaning all pensioners would receive a non means-tested sum.


The Scottish National Party has pledged that it will:

  • protect Scotland’s NHS budget
  • introduce job-creating powers for Holyrood in Edinburgh
  • stand by free tuition
  • ensure there are smaller classes for school children

Additionally, the party backs the cutting of cheap booze and wants to introduce a minimum pricing for alcohol, and has a zero-waste strategy.

Health and care priorities include protecting the health budget and cutting senior management in hospitals by 25 per cent, although some of these points are partly devolved to the Scottish Parliament, which is next up for election in 2016.

The needs of Scottish pensioners are hoping to be met by the party by re-shaping and simplifying pensions, who have also questioned the UK’s plans to increase retirement age to 67 in the near future.

Plaid Cymru

The main priorities of the Welsh Party are to:

  • introduce a living wage by 2020 for all employees
  • provide an additional 1,000 doctors for the Welsh NHS
  • scrap bedroom tax as introduced by the Conservatives

The party also hopes to get the same powers and funding as Scotland, with an additional £1.2 billion per year.

As with the Scottish National Party, the issues here are also partly devolved to the Welsh assembly, which is also up for election in 2016. However, for health and care it has been pledged that alongside the training of extra doctors, there will be a fund created for treatments not usually available on the NHS, with the party strongly opposing NHS privatisation.

All pensioners would be provided with a living pension and support would be given for early access of these. The party also hopes to inspect flexible pension rights for the self-employed.

We hope we’ve managed to clarify things for you, but if you’re still unsure about which party to vote for, you can take this survey by Vote For Policies, which may be of further help.

Image Credit: John Keane (

Thanks to Age UK for this excellent digest

age uk

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TESCO extra pensions

Originally posted on The Vision of the Pension Playpen:

tesco slough tesco slough (Photo credit: osde8info)

I’ve followed Tesco’s progress towards the staging of auto-enrolment closely this week. I think we are at a tipping point in pension provision in Britain, a point which could see the return of pensions that do what they say on the packet (defined benefit if you like).

If this happens, it will to no small part down to Tesco and some other “early staging” mega- employers, and the approach they are taking to providing pensions to their staff.

If there’s one thing for sure, Tesco do not splash cash unnecessarily. Standing in the queue for some sliced ham at their Chineham store on Monday, I heard the sad tale of the broken cheese slicer which Tesco would not replace as their cost-cutting  budget did not include £100 for a new machine.

You broke the new one  –  you use the old one.

It sent a…

View original 484 more words

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What’s inside the wrapper’s – what matters! Guest blog from Ralph Frank



I often find myself bemused, and/or confused, when I see investment portfolios specified in terms of product wrappers (e.g. unit trusts, exchange traded funds, structured notes etc.) instead of the underlying investments (e.g. equities, bonds etc.).  The underlying investments, and related risk exposures, are the first-order drivers of the outcomes savers experience not the wrappers.  The wrappers might well have a second-order impact but this influence is likely to be less material than the first-order impact.


I understand that unpicking an investment product, particularly in the face of a determined sales pitch, ranks somewhere near watching paint dry for many savers but some degree of analysis might have a disproportionate financial impact.  This ‘effort to impact’ ratio is particularly high in the cases where the events deep into the fine-print of the risk warnings come to pass – and we have seen more than a few ‘one in a billion year’ events in this millennium already.


The wrappers cannot add new benefits to the underlying investments beyond offering simplified access to a grouping of these investments.  The provider of the wrapper might add some tweak to change the characteristics of what’s on offer.  The tweak might take the form of combining instruments from external sources instead of/in addition to the provider.  Whatever the case, unpicking is required in order to understand how the promoted outcome is likely to be delivered.  In some instances, the unpicking process will demonstrate that the promoted benefits are unlikely to be deliverable (although the corresponding get-out clauses for the provider will be clearly set-out for those prepared to do the reading).


The wrappers might well detract from the underlying investments, particularly if poorly structured.  They are often complex legal vehicles, with corresponding costs of management.  The wrappers might also make it more difficult to see what is happening to the underlying investments and the resulting economic value.  This value is potentially subject to unintended tax consequences for certain classes of savers too.


Wrappers do have at least one benefit – offering simplified access to a number of underlying investments in a single transaction, with corresponding benefits of economies of scale.  Why not make these investments the primary focus of a portfolio construction exercise and address the wrappers as a follow-on decision?  Does a focus on the wrapper not expose the saver to the risk of holding assets with characteristics other than the saver intended?

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Pension salary sacrifice – how to make friends (and keep the bosses happy)!


Whether you’re an agent or working in-house processing pension payments are or will be part of your payroll duties. But are you doing all you can to make those pension payments as efficient to your employer as they can be?

I am still surprised when I come across a workplace pension which isn’t set up under salary sacrifice (sometimes called salary exchange).

When I ask why employees are still paying contributions out of income on which tax and NI have been paid, I’m often told that they know about the idea but are scared of using it. If you are reading this, run payroll and don’t operate salary sacrifice, then don’t let the excuse be that “payroll isn’t up to it”.

Salary sacrifice offers a way to set up pension payments that can allow both employers and their employees to make a saving. If you want to know how it works and what the savings are likely to be there are many good explanations on the web. The best I’ve come across is Aviva’s .

So why does salary sacrifice have a reputation for being scary and how can you – payroll – become the safe pair of hands to make it happen? In my experience it’s because employers know there are risks, but don’t know how to mitigate them.

By being aware of and implementing the following safeguards, you can future-proof your employer and win yourself friends throughout your organization.

Safeguards You need to take careful account of all pay-related benefits to make sure they are not reduced by the salary sacrifice e.g. items like overtime, shift etc. may be calculated by reference to the basic rate.

The best way of dealing with these is for it to be established that they will continue to be calculated, both immediately and in the future, by reference to what salary would have been had the salary sacrifice not taken place.  In practice this is often done by using a notional ‘reference salary’ for calculating the benefits. Where members are in defined benefit pension schemes, where the amount of pension is defined by reference to final salary, then a similar safeguard needs to be introduced. Otherwise there could be a big impact both on the value of past and future service pension entitlements.

Future pay rises should always be determined by reference to the pre-sacrifice salary level. What about state benefits? The major potential effect here is on members entitlements to State Second Pension (S2P). The effect of salary sacrifice depends on whether the employee is contracted-in to S2P or whether they are contracted-out, with a bigger impact where people are contracted-in. If you are contracted-in then for the majority of employees’ S2P benefits are directly reduced by salary sacrifice. The complexity of S2P means this is not a straightforward picture but people whose gross earnings are in the range of £14000-£40000 will lose out by amounts which increase the older that they are.

From April 2016 there will be no more contracting in or out, but between now and then, losing S2P benefit could take away a significant part of the gain of salary sacrifice Where salary sacrifice is proposed in a contracted-in situation, payroll can quantify and advise staff on the impact on S2P. Where employees are contracted-out the losses are much less because to a large extent their scheme benefits replace S2P. But lower earners do still get a significant top-up S2P payment which will be directly reduced as their gross salary is reduced.  In most circumstances salary sacrifice will still deliver a substantial net benefit to members, but S2P losses mean that employees will gain a lot less than employers. Employees on very low pay should be excluded from salary sacrifice for two reasons.

Basic State Pension would be affected if the salary reduction dropped a members earnings below the N I threshold (or LEL), which is currently £5824pa

In a similar vein a salary sacrifice would not be allowed if it took members pay below the National Minimum Wage.  Salary sacrifice needs to be properly communicated if it is to gain employee support. (thanks to Kate Upcraft for this important point).

It can be introduced either by members being invited to opt-in or by employees being included but advised of an option to opt-out. While the latter strategy may be pressed to overcome member inertia and suspicion it should not excuse the employer from properly communicating the scheme

Where any proposal is introduced it would expected that it would be accompanied by clear information as to who might stand to lose as well as who might stand to gain. While the gain from NI savings may be similar for employees and the employer, employees may lose out significantly from reduced S2P benefits. This should support suggestions that part of the employers’ savings should be channeled back in some sort of benefit for employees e.g. to offset a part of a contribution increase in a defined benefit scheme or to provide a supplement to the employer contribution in a defined contribution scheme.

Normally an employee using salary sacrifice would be expected to use the arrangement for a year for it to be considered valid.

Where salary sacrifice is being used in conjunction with auto-enrolment you need to take care that each eligible jobholder has the right to opt-out of salary sacrifice independently of the pension opt-out. Fortunately, a decision to opt-out of an auto-enrolment arrangement within a year of joining it, does not invalidate the salary sacrifice arrangement.

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Unrecoverable VAT on auto-enrolment advice


Advising on the pension decision used to be VAT free. That is because of an exemption for insurance that made commission and fee based advice on commission products VAT free.

But now advice on auto-enrolment and pensions does not just include insurance products and we can no longer offer a VAT exemption for advice.

This is not a problem for larger employers who can generally reclaim the VAT, but many if not most of the Micro employers will not fall within the VAT threshold. 

So the Government will be charging them 20% of the cost of advice, for taking it! 

This cannot be how to improve decision making among SMEs and Micros. 

Pension PlayPen urges the Government to reconsider the rules surrounding advice on auto-enrolment and especially around choosing a pension. 


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