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.

Posted in pensions | Tagged , , , , , , , , , , , , , , , , , | Leave a comment

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



Posted in pension playpen | Tagged , , , , , , , , , | Leave a comment

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

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

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.


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

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.

Posted in annuity, Matisse cut-outs, pensions | Tagged , , , , , , | Leave a comment

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!


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

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.


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

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.



Posted in auto-enrolment, Pension Freedoms, pension playpen, pensions | Tagged , , , , , , , , , , , , , , , , , , , | 2 Comments

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.


Posted in pensions | Tagged , , , , , , , , , , , , , | Leave a comment

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.



Posted in pensions | Tagged | 1 Comment

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.


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

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!


Posted in pensions | Tagged , , , , , , , , , , , , , , , , , , , , , , , , | Leave a comment

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.


Posted in pensions | Tagged , , , , , , , , , , , , , , , , , , , , | Leave a comment

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.


Posted in reward, risk | Tagged , , , , , , , , , , , , , , , , , , | 11 Comments

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.







Posted in pensions | Tagged , , , , , , , , , , , , , , , , , , , , | 5 Comments

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.





Posted in pensions | Tagged , , , , , , , , , , , , , , , , , , , , , | Leave a comment

“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).

Posted in pensions | Tagged , , , , , , , | 20 Comments

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!

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

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)!

Posted in Bankers, Blogging, pensions | Tagged , , , , , , , , | 6 Comments

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.



Posted in pensions | Tagged , , , , , , , , , , , , , , , , , , , , , | Leave a comment

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..


Posted in pensions | Tagged , , , , , , , , , , , , , , , | Leave a comment

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.


Posted in pensions | Tagged , , , , | Leave a comment

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.



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

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

Posted in pensions | Tagged , , , , , , , , , , , , , , , , , , , , , , | 3 Comments

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


Posted in pensions | Tagged , , , , , , , , , , , , , , , | Leave a comment

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












Posted in pensions | Tagged , , , , , , , , , , , , , , , , , , , | Leave a comment

How can this be?

how can this be

A school friend of mine, came to see me yesterday with some paperwork. He had been reviewing his financial affairs.

Like me , he is 53 and had been excited by talk of the new Pension Freedoms.

The problem

His pension pot is worth around £150k, his wife had around £15k, he was not funding his pension, she is.

His money is invested with Aegon, he is currently paying 1.75% on his money, his money is in the Mixed Fund. His wife is saving into a workplace scheme and paying 0.68% -she is in a default fund.

My friend wanted advice on how he could use the pension freedoms to help him and his wife have a better life.


The proposal

The proposal was for his money to be invested in a range of 15 active equity and bond funds, most investing in growth stocks. The average management charge of these funds was 0.79% (there was no disclosure of the impact of transaction costs). On top of this he would pay a one off transition fee to the adviser of 3% and costs associated with the Aviva Corporate Wrap product.

The impact of these charges, were he hold the investments for 10 years would be 3.7% pa (plus the transaction costs). I spotted a bout 15% of the proposed money would be with Vanguard, but a quick resort to the Miller’s True and Fair Calculator showed that in total, this chap would have to see a return of around 4.5% on his money (over ten years) before he saw any nominal growth on the portfolio.


Buried deep within the investment report were some calculations which suggested (based on some realistic growth assumptions) that the anticipated growth of the portfolio of funds in real terms was – 0.2%.

The title of this blog is “how can this be?” and that’s what my school friend asked me.


What would happen?

The adviser, was suggesting he take an oversight fee

The stockbroker who managed the portfolio of fund would take a fee for portfolio construction

The fund managers would take their management charges

Those processing the transactions would take their charges

The insurance company would charge for the wrapper

Taken together, the stated total cost was 3.7% plus transaction costs.


It nearly worked…

My friend was due to sign on the dotted line in the next few days, this nearly came to be because the proposal looked so good.

The packaging of the investment report, the credibility of the adviser, the brands of the fund manager and the mind jumbling jargon that underpinned the report nearly did the trick.

The adviser had clearly dotted every regulatory “i” and “t”, he probably had a string of letters after his name and could show a lot of CPD.

It was a very credible report, it nearly worked….


But not quite.

Included in the report were some separate proposals for my friend’s wife. The suggestion was that even though she continued to pay into her workplace pension (an occupational DC plan) , the money she had accumulated could be taken out and re-invested in a similar arrangement to her husbands with an AMC of  only 1.4%.

The only consistency I could see in this proposal was that the overt charges were increasing by just over 100% in both cases, her funds would be invested  in a passive fund with an AMC of 0.1%, 100 out of the 140 bps per annum would be paid to the adviser.

I think it was the inconsistency between the advice given to him and his wife that tipped this chap off to there being something not quite right, that got him to get in touch.


What could I do?

I explained what was being recommended and converted the percentages into pounds shillings and pence

I asked my schoolfriend what he had been getting for his 1.75%

I asked him whether he could explain why he would benefit from using these funds

Finally I asked my friend what his financial strategy was for drawing on his savings?


What could he do?

My schoolfriend did not know what strategy he should adopt, that is why he had gone to the adviser. He was still no clearer about how he and his wife were going to make ends meet in later life.

As for the product suggestions, he wanted to know what choices he had. He had not seen the broker who set up his Aegon pension for nearly 15 years. I suggested he phoned up Aegon on the number on his latest statement and ask to be put through to someone who could treat its customer fairly.



No cause for redress!

I felt sorry and angry in equal measure, sorry that so much of my friends’ savings had been taken in charges which delivered no value for money. Angry that at a time when the ABI are conducting a review into legacy, nothing has been done to help this chap get a decent deal – what is fair about paying 1.75% of £150,000 for so little?

But this is nothing compared to my repulsion for the business ethics of the adviser proposing to take £4,500 upfront and allow my client to pay well around £4,000 pa to have his funds managed by people he does not know in funds he does not understand.

To my friend, his pot of £150,000 is a substantial asset, he was looking for advice on how he could spend it. Instead he got investment advice he neither wanted or needed.


So he’s thinking about it…

Fortunately , my friend is now going to go away and do some independent research.


Why does this still happen?

So long as we see this kind of financial thuggery , pensions will continue to have a bad name. The trouble is there is no way to whistle blow. The report my friend had looked fully compliant, all the numbers I have quoted were within it. Nothing was not disclosed. Yet for all that, my friend was about to walk from a bad contract into an awful contract without any consumer protection whatsoever.

Posted in advice gap | Tagged , , , , , , , , , , , , , , , , , | 11 Comments

How far can guidance go?

guidance 2

Guidance Technology?

I am interested by Guidance Technology, it is at the core of

As we use it, Guidance Technology narrows down options available to people to a shortlist that is clearly differentiated.

For an employer to choose the right workplace pension, we list up to 25 options in a clear league table, each provider’s league position depending on an employer’s circumstances and preferences.

Employers make choices, not because they are told what is best, but because it becomes clear to them what is the best course of action for them at that time.

Guidance Technology applied to individual decision making at retirement

Let’s suppose it applied to the decisions to be taken by someone at retirement, the options to someone might appear ; this of course is a case study and not meant as advice to anybody I know!

  • Cash out the pension pot and pay off personal debt, keep working
  • Economise, keep the debt and keep working
  • Economise,keep the debt, keep working and keep saving
  • Cash out, emigrate and ride your luck.

Where digital guidance might help would be in helping work out what the different options would mean in terms of cashflow (income) and capital (cash in the bank).

It might also help work out which route involved paying least tax (particularly helpful with the timing of decisions).

Guidance Technology might also help in suggesting what might happen to investment income, what state benefits might look like in years to come, it might even help in working out what to put by for later life expenses or whether to insure against the calamity of long term care expenses.

Does it work – do we have evidence elsewhere?

I am struck, when I talk with accountants, how most of their scenario planning is done on PCs, tablets and even i-phones. Go to an Accountancy Conference and every stand is advertising an app to deliver instant answers to financial questions.

These apps pre-suppose the ready availability of good data (it is the stock in trade of an accountant) and the ability of an accountant to follow instructions to get to the final screen.

Many of these apps are marketed as games, with rewards along by way of icons and bells to signify milestones achieved. Many apps have help buttons which introduce answers given by previous users to frequently asked questions. The concepts of gamification and of social media are integrated into the journey.

I have seen demonstrations of the use of similar solutions to help people take individual decisions. They come from abroad. I was recently talking to an Italian pension administrator who provides these apps to 3.5m European customers.

Guidance Technology need not be difficult, it can be fun and the journey can and should be rewarding.


Making it fun

To return to my retiree,Technical Guidance could do more than list the options, it could order the options according to the importance that individual placed on “not paying tax”, “trusting investments”, “capacity to work”, “willingness to work” and “current and likely future health”.

In my example, there are a mixture of  quantitative and behavioural variables that need to be input into the model for a league table of options to emerge and it’s vital that any model can be revisited to see the impact of changing them in absolute and relative terms.

The other feature I see in much of the software appearing in accountancy packages, is a degree of humour and homeliness. Instead of spreadsheets, these applications present the variables in terms which resonate with comfortable scenarios, one accountancy package “Quickbooks” even sound like “Cookbooks”, making me smile and titter!

The front ends of these packages are visually attractive and navigation is thought through to make next steps intuitive and therefore easy. Gamification is the concept of making something that looks hard , seem easy. Pension PlayPen gamifies its subject.


What’s stopping us?

It strikes me that financial advisers are not going to want to embrace technical guidance anytime soon. It looks about as attractive to 21st century advisers as the threshing machine looked to 19th century farm labourers.

But this is the point. The demands to feed the empire made on 19th century farmers, demanded the application of new technology to increase overall productivity. The increase of productivity per labourer ultimately fed through to greater prosperity for the farm and fed urbanisation which moved us to where we are today. There are many who pine for a rural idyll of a pre-agrarian revolution, they should be reminded of Hobbes’ epithet for such a life “nasty brutish and short”.

The demands on our welfare state demand that we can no longer hand out benefits, no more can we hand out advice. People need to adapt and adopt the new technologies if they are to make the most of the new freedoms that are coming their way.


Leadership is needed to bring about change.

For most people, the kind of advice that people with wealth can purchase, is beyond their means or simply not something they want to pay for. Whether it is our of necessity or parsimony, people are not going to pay for a financial plan or pay the commission to implement it.

For these people, Guidance Technology is probably the answer. With 65% of the population now owning a smartphone or tablet, the hardware is in place. For everyday people, the software is not. The barriers to getting that guidance software to the mass market are primarily regulatory. But regulators are being held back from allowing guidance technology to be put in place, beset by the legacy of mis-selling over the past 30 years.

What is needed is leadership that can bring together the technology , the products and the advice and make it readily available to everyone. So people can be empowered to make financial decisions for themselves.

I am beginning to see signs within Government of such leadership and will be writing more on this subject in the next few weeks.




Posted in advice gap, consultant, defined ambition, defined aspiration, pension playpen | Tagged , , , , , , , , | 5 Comments


goat nudging


Inertia selling is all the rage in financial services. We encourage the use of the defaults investment options, we applaud the non-decision not to opt-out of a workplace pension and now it seems we are to applaud the seamless transition from accumulation to decumulation advocated by certain corporate advisers , certain insurers and certain fund managers.

I cannot name names because the plans are under wraps (or as we now call them “non-disclosure agreements”). It is however an open secret that three of the largest actuarial consultancies have or are planning to launch master trusts to house the members of the occupational DC schemes  they advise and/or administer.

Exactly how this is going to work is beyond my technical expertise. To move members from one occupational scheme to another ( a master trust is an occupational scheme), WITHOUT MEMBER CONSENT requires an actuarial certificate that confirms there is no member detriment. It also requires the employer sponsoring the accumulating scheme to be a participating employer in the master trust.


The reason for transferring from one scheme to another is to remove the liability on the original employer for the outcomes of the decumulation process. To use the parlance of risk management,

“if there’s going to be a train-crash, let’s make sure it’s not on our watch”

So just how much “separation” is there going to be , if you the employer, establish an arrangement by which “risk” (here defined as the financial future of your retiring staff) is transferred from your trustees to someone else’s?

NOT MUCH! Risk, in financial services, has a nasty habit of rebounding. Banks have not been able to wash their hands of the outcomes of PPI, Swap sales to SMEs, LIBOR rate-rigging, Forex manipulation, Custodial theft or any of the other market abuses for which they have been fined some £3bn over the past year.

What is common to all the abuses is that they happened because consumers were not aware of the implications of the transactions that they entered into. Indeed, many of the abuses happened because the purchasers of services were not even aware that they were being sold something.

If the large banks (who happen to be sitting on more DC money than any other part of UK corporate, decide to ship out the pension pots of retiring members, then they will do so with extreme caution.

I think it very unlikely that Trustees will wish to be a party to any transaction to wash their hands of the outcomes of their labours without being absolutely sure that the transaction has the consent of the people involved. This means more than a default acceptance, it means actively engaging people in the process and clear documentation that the transfer has not happened because of “inertia”.


We are now entering into a new phase of DC consulting, what can frighteningly be referred to as “DC de-risking” (you heard it here first).

If trustees “want out” of managing their member’s pension pots, they are going to have to work hard to achieve “separation”. Ironically, this is likely to mean increasing the barriers to transfer, not creating a seamless service.

I use the word “ironic” advisedly, for conventional wisdom supposes that a straight through process is the only way that action will be achieved and that a non-advised nudge (as happens with AE) is what is needed to get rid of elderly DC members.


No matter how good these new master trusts might look,

no matter the efficiency of low cost transitioning-

high quality fiduciary management-

expert corporate trusteeship-

and world class administration –

I think it unlikely that an employer or a trust board that bulk transfers of DC pension liabilities  will have wiped them from its “risk register”.

Any more than insurers can consider they are off the hook for the “seal-clubbing” of annuitants into hopelessly uncompetitive annuity products.


There are of course alternative strategies that could be employed.

Employers could sponsor trustees to administer drawdown from within the scheme,

They could offer financial education – guidance – even advice, to staff considering their retirement options.

Whether employers could go so far as to signpost specific course of actions (such as a master-trust of a GPP is a matter for its lawyers. I suspect that without some kind of “safe-haven” legislation, most employers will be deeply suspicious of directly recommending any financial product unless it can be seen to be totally separate from that decision.

What is obvious, is that a new form of intermediation is needed to offer the kind of separation employers need.

The need is not just to reduce the risk of “yellow-labelled pension liabilities”, it is to maximise the satisfaction of retiring staff with their decision making, give confidence to retiring staff to retire and improve the value of the employer brand and the pension value proposition.

The business case has yet to be formulated by any adviser or employee benefit consultancy I have spoken to. I suspect that it will not become compelling until there is a genuine improvement in the quality of product available to advise on or signpost to.


Perhaps the experts within the large pension consultancies should consider how they can help those products be built. They need to think of separation too!

inertia selling


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

So much for the “haves”, what of the “have nots”?

It has now been well over a year since the OFT published this comment



Since this warning, not a lot has been done to improve the quality of purchasing by employers.

The DWP is introducing legislation in April which will make it hard for employers to buy a bad pension. The Pension Regulator is talking of introducing a Directory of workplace pensions that concentrates on easing capacity rather than improving quality.

But there is precious little talk of helping small employers buy well.


There are good buyers…

Large employers do buy well, they have professional buyers called pension managers, they bring in high quality advisors and they purchase using a process that is broadly consistent.

The purchasing process works well for both sides. Providers et feedback which helps them develop product while employers can see the whites of their pension providers eyes.

The integrity of the beauty parade selection process relies on decisions being taken on the likely outcomes for members. The employer’s purchasing were used to paying for self or third party administration of the workplace pension and it went without saying that the advisers would submit invoices to the employer (sometimes via the trustee).

So what has gone wrong?

This labour and cost intensive approach to scheme selection could not be replicated for smaller companies. Those costs that had been picked up by employers were transferred to the employee. The pension pot had to pay not just for the administration of the pension , but for advice to employers. With the introduction of auto-enrolment, the AMC was being used to pay for everything from bespoke communications to the implementation of workforce assessment tools and opt-out mechanisms.

In this mid-market, the provider did not see the whites of the client’s eyes. In fact the client and the provider might never meet as the adviser embedded themselves as essential to the process. Middlemen and middleware were deemed essential to the purchase and the outcomes of the workplace pensions were relegated to lower league status.

Somewhere in the mess of flex-benefits, corporate wrap and worksite marketing, the commercial imperative of getting staff into retirement has been forgotten

What about the smaller employers – should NEST be the only fruit?

I am very concerned about NEST. It has an important place in the market but it cannot become the market.

It had to be created because the large insurers could not promise capacity for the long tail of micro and nano employers.

So we should be grateful that there is a back-stop for the small employers that exist today and for those of tomorrow.

But that is only half the story, a market that becomes over-reliant on NEST to do the dirty work is a lazy market. The process of competition that works well at the top of the food chain (e.g. with large employers), is all but lost when NEST becomes the only fruit.

What concerns me about NEST is that it is allowed to grow conceited. It is not a great success story, it is the swallower of some £400m of public funds. At some point it will have assets to match its debt but it is a long long way from self-sufficiency, let alone being debt-free. Recent behaviour such as its refusal to adopt the PAPDIS standard and its quasi-governmental consultation on its post retirement strategy worry me. What further worries me is that NEST thinks it can get its consultancy for free.

It is this confusion between NEST the public servant and NEST the cuckoo driving out all other species, that is causing me problems.

Because it is allowing us all to take our eye off the ball.


The new workplace pension market

If we are to have workplace pensions for all, then we need the employers – who control the workplace – to engage with the pensions they are establishing.

We have moved from a market with integrity and independence (large employers) to a mid-market, compromised by over-intermediation and we are about to launch a new market for over 1m smaller employers.

This new market has a different kind of customer- Steve Bee’s Fish and Chip shop owner. It needs a new kind of regulation that recognises that these new customers need to be protected from bad purchasing, it needs a new kind of adviser, who is able to transfer the integrity and independence at the top end of the market to this mass market. Finally we need a new type of product that can be purchased easily, implemented easily , managed easily and delivers the kind of returns that would be expected of large employer schemes.

A new type of customer

We have a new kind of buyer. We know nothing about him or her since they have never bought before. This buyer may be familiar with a pension plan purchased for him or herself, but not for others.

The process of buying,promoting and managing a workplace pension for others is not a skill that has ever been taught. Not in schools or college or in any vocational course. The skills reside within a small group of expert buyers (pension managers) and a group of pension consultants.

These skills are not being shared. I see no effort to transfer the skills and knowledge from the NAPF membership and the PMI membership to meet the needs of the one million employers yet to stage.


Haves and have nots

Commission is dead, middleware is dying and large and medium employers are managing very well.

The challenges of 2012 and 2013 have been overcome (not without considerable expense- some of which unnecessary). If you work for a large or medium sized employer you have a workplace pension. If you advise such employers, your work is largely done. Large employers have other problems for you to attend to.

But what of the have nots – those weak-buyers the OFT pointed to? What of the employers who are finding their relationship with their advisers unwinding as payroll takes back the management of auto-enrolment and commission is ripped out of the AMC?

What of the employers who have no adviser or an adviser who tells them they are not advising on workplace pensions?

These employers may run great businesses, great charities or third age initiatives but they know nothing about pensions. They have not engaged with pensions, they know nothing about pensions and they have no means to get up to speed.

How can such employers become “haves”?




Posted in actuaries, auto-enrolment | Tagged , , , , , , , , , , , , | 2 Comments

A tax on a tax


Yesterday I wrote about the various Government interventions that employers in the UK have had to cope with. My point was that the employer is increasingly being used as the unpaid agent of the welfare state.

Auto-enrolment is one case in point. Employers are expected to comply with detailed rules and threatened with fines for non-compliance. The purpose of the rules is to require employers to pay money on their behalf and on behalf of their staff , into workplace pensions. There is no direct benefit of these pensions to employers, on the face of it , this is an employer tax – an extension of NI.

In his Quinquennial Review of the National Insurance Fund, the Government Actuary made a direct link between the success of auto-enrolment and the strain on Government Finances. He tells us that by 2020, the success of auto-enrolment should allow Government to reduce the benefit of state pensions. So auto-enrolment is a means of reducing public expenditure, a means of taxing people and companies to pay their own pension rather than being dependent on general taxation.

While there is an obvious reason to comply with the auto-enrolment legislation. IT IS THE LAW (as the Pension Regulator is keen to remind us), there is little incentive for an employer to choose the right pension. Unless the business owner is a beneficiary of the auto-enrolment workplace pension , any money spent on ensuring good outcomes from the workplace pension chosen, is altruistic.

Despite this, many employers do choose to spend time and money on getting the right workplace pension for their staff. They should be regarded as heroes by a Government for whom the long-term success of this policy lies not in compliance with auto-enrolment regulations but in the success of the pension schemes in improving living standards.

Put simply, if these workplace pensions don’t work, then national insurance rates will go up.

It would make sense to reward small employers who spend money researching and documenting their research into the workplace pension generations of staff will rely on.

But this voluntary act of due diligence by an employer is not rewarded – it is taxed!

Incredible as it might seem, in the context of the strain being placed on employers, employers are being required to pay VAT on advice and guidance they receive in selecting their workplace pension.

This is despite the purchase of insurance products being zero-rated.

The problem is that whereas advice on pure insurance products (such as fully insured GPPs ) is zero rated, advice on non-insured products including the NEST Master trust, is not exempted.

So any kind of whole of market advice carries a VAT charge of 20%.

For medium sized companies, even for most SMEs, this should not be a problem- they are registered for VAT and can reclaim the VAT they pay. But there are many employers who are recognised as charities who are not able to claim back VAT and many micro and Nano employers whose turnover is below the VAT exempt rate (£68,000) who will have to set up a workplace pension but who will have to pay un reclaimable VAT do it properly.

I have been warning about this problem for some time . The problem is likely to increase as the number of employers being born soars. According to ONS , the number of new businesses borne has exceed those dying each year since 2011, even the ONS cannot get accurate data on how many of the 2.5m business enterprises active last year are VAT registered (they currently have an information request out on this).


This is something that should be addressed by each political party’s election manifesto. We cannot tax small business 20% on an activity which is generating them no money and is effectively subsidising another department of Government (HMRC +DWP).

Each party should consider its position on this and should take steps to ease the business burden of Auto-Enrolment on small and vulnerable employers. This does not mean dumbing AE down (let alone scrapping it for micros as has been mooted in far right circles). It does mean finding a way to let smaller firms buy advice and guidance on their workplace pensions without paying VAT.

I believe that this advice and guidance should be regulated by the Pension Regulator (not at this stage by the FCA) and that the regulation should be proportionate to the needs of this market. That does not mean that SMEs and micros should be regarded as retail consumers, but they should certainly be accepted as a new class of customer which needs a different kind of assistance than the larger employer (for who there is a well established advisory market).

I would be very happy to pick up the phone to any politician or researcher wanting to get help on this. I suspect that if this matter is not looked at now, it will be looked at too late. The rush of employers staging in 2016, need to do their homework in 2015 and we need help on this matter in either the 2015 budget of 2015 autumn statement.

The alternative will be rushed and fudged legislation on the hoof as the problems outlined in this blog hit home.



Posted in pensions | Tagged , , , , , , , , , , , , | 6 Comments

“Collaboration” is not a dirty word

F1rst Actuarial hi-res





In this article, I am setting out First Actuarial’s and Pension PlayPen’s auto-enrolment strategy for 2015 and beyond.

It is a strategy that sets out to collaborate with not compete with advisers.


Why we chose to work with, not compete with IFAs

When I Joined First Actuarial five years ago, we have plans to become regulated advisers and offer independent financial advice. Having been a reguated IFA for 15 years, I was bought in to make it happen.

Instead of setting up First Actuarial IFA, I advised the Founders of the firm to to another route.

As a firm we chose to work with IFAs rather than compete with them, and I’m glad we did.

Our firm now has a series of partnerships with advisory firms that enable us to work together on client projects.

Wd work on DB de-risking projects , on financial education in the workplace and we direct the members of the schemes we administer to IFAs when they are retiring.

So why did we choose to outsource this work , not do it ourselves?


The positive impact of the RDR

The Retail Distribution review has radically improved both the quality and the image of financial advice. People are now turning to IFAs for advice rather than advisers turning to people to sell product. There is still a long way to go before the advice and product are de-linked but increasingly we see advisers invoicing clients and invoices being paid.

Our principal motivation for becoming advisers was a frustration with the lack of integrity and independence displayed by advisers. With this changing, the need for us to step into the breach has largely disappeared


Auto-enrolment makes it easier to collaborate than compete

The implementation of auto-enrolment into firms staging in 2012 and 2013 was always gong to require specialist skills. The processes needed to integrate complex HR and payroll systems with the clunky back ends of workplace providers became a pre-occupation for pension consultancies. The challenge for these clients is moving on, soon the 2012 stagers will be re-enrolling, many of the processes put in place in the early days , already look obsolete, simplification and digital automation will be the buzzwords in this part of the market.

But the second round of stagers, with the huge spikes in demand from the back end of 2015 onwards, are going to require  advisers and pension technicians (which is what we at First Actuarial are) to work together.

pension capacity

We foresaw this problem in 2012 when we started planning to deliver a service which would allow SMEs and micros to choose the right pension for their staff, whether that pension was a master trust, an insured GPP or even an uninsured SIPP.


First Actuarial set up Pension PlayPen to help advisers not to compete with them

Our bet was that with the help of the Pension Regulator, payroll would step up to the mark and deliver the kind of support that would make auto-enrolment processing an extension of the payroll service offered by accountants, book-keepers and specialist payroll bureaux.

If, as we expect, smaller employers find it possible to manage auto-enrolment processing for themselves , or through an outsourced payroll service, then how will IFAs add value?

Our bet is that a high number of smaller companies will regard the decision about choosing a workplace pension for management and staff as too important than simply to opt for NEST.

Even when the search concludes that NEST is the right answer, many employers will feel comfortable knowing that not only can they explain why they chose NEST but why they didn’t chose from the other options available to them.

And for many employers, NEST may not be the right answer.

The problem for IFAs is that the kind of research needed to explain why NEST is more suitable than NOW, or Legal & General more suitable than Standard Life is beyond their grasp. What is needed is a technical service provided by experts who have systems and processes in place to do this research.

The research and development into the delivery of this kind of help to employers and their advisers, led to our setting up , a service specifically targeting the choice of providers when an employer is setting up a workplace pension under providers.

To our surprise and delight, the majority of workplace pensions that we have set up in 2014 have been through Pension PlayPen and under the guidance of independent financial advisers.


So how can we work with YOU in 2015?


We see 2015 as a year when advisers can establish workplace pension practices where they can become the trusted corporate advisers to the small employers of Great Britain.

Contrary to the experience of large employers, who already had pensions, the next waves of employers (who don’t) will see auto-enrolment as an opportunity to set up pensions for their staff (not just another regulatory headache).

Of course advisers will need to know and understand the rules and be experienced in implementing auto-enrolment best practice, but this will not be where advisers will be valued.

We see advisers as the bridgehead between the pointy headed technicians we employ at First Actuarial and the one million employers who have never set up or paid money into any pension plan.


Establishing a credible service has been hard work

In our first year of trading, Pension PlayPen has won 11 national awards. We know our stuff and we’re proud of the profile we’ve achieved

mallowstreet awards ima awards pension awards pension scheme awards EI-Awards-Web-Header

Building on two years in the market

When we originally scoped the service provided by , we thought that many employers would source pensions directly from the site. Some have- but we underestimated the ongoing importance of advisers in “hand-holding”.

In practice, choosing a workplace pension, even using a system as childishly simple as ours, is intimidating, pressing the button to choose one pension provider from a list of many and initiating a relationship with that provider is still too hard for most employers.

However, when an adviser is in place, choosing a workplace pension really seems child’s play. Over 450 employers have used to source their workplace pension in our first years’s trading, of these – over 80% did so with the help of an adviser.

Whether the adviser is regulated (an IFA) or an accountant or book-keeper is not the issue. The issue, as the Pension Regulator is right to point out, is that there is skill and knowledge on hand to ensure that the choice made is appropriate and properly documented.

Non-regulated advisers are wary , both in respect of their insurance and their position in relation to regulators, to be seen to be offering a definitive course of action. Like IFAs, they are using both to add value to their client relationship , and to protect themselves from being seen to be “offering financial advice”.

And this gives regulated advisers the opportunity to work with accountants, who have the existing relationships with employers, to the common good.


A new approach to solving problems for small employers

Collaboration, not just between Pension PlayPen and advisers , but between accountants, advisers and Pension PlayPen is the way First Actuarial have chosen to bring its skills and knowledge to market.

We think it is a model that could be repeated but we know how hard it is to deliver this service within a tight budget in a way that makes sense for both employers and advisers.

If you are an adviser (regulated or otherwise) and want to know more about how to use, you should register at If you would like to speak with one of us about how we can set up an agency agreement with us that can allow you to profit share with us.

Now is the time to be setting your auto-enrolment strategy in place, now’s the time to be getting  in touch. My mobile is always on 07785 377768, my e-mail is regularly checked,



Posted in accountants, actuaries, advice gap, pension playpen, pensions, Pensions Regulator | Tagged , , , , , , , , , , , , , , , | Leave a comment

What you want and what you get- Happy Christmas!

Because it is early on Christmas morning I should start by saying happy Christmas.

bear 2I am not in bed because I have a code and have been listening to Jane Garvey talking about the changing way we listen to radio.

Later versions of this post may have the podcast of this fascinating program but it is not up on yet.

As a 50 something, it is harder for me to adapt to being able to get what I want when I want it, the thrill of getting a radio program at 4am on Christmas morning that was exactly what I wanted. What I wanted included extracts from Serial, Rachael, the drunk Doctor’s moving conversations with Victoria Derbyshire and a gender changing DJ talking excitedly about being accepted by her Yorkshire listeners.

As I hunted around the BBC radio i-player library, I realised that there was so much of what I wanted here, it was making me sad. I wanted to have a program thrust into my hand and to be told – go and listen to this (young man).

Ok the “young man” bit is peripheral.

It was sad to hear that the people who create Podcasts that pretty well do this for you, have difficulty getting paid. It was interesting though that people are developing personalised podcasts that pick up on your listening habits and create programs that bring together exactly what you want when you want to get it.

This is of course the essence of retailing. Running an online business, I know that when my customers want to buy, I need to give them a clear run at what they want so they can get it with no fuss.

This particular message, which is going to nearly 11,000 people who follow me on linked in, plus another 4000 (probably the same misguided wretches) who follow me on twitter, may or may not be exactly what you want how you want it.

The only way to tell, will be by the comments, likes and reads this blog gets on social media.

Like the bear in the picture, I enter the bin head first, in hope more than expectation. Like the bear, I will probably find myself embarrassed, but hopefully in an enjoyable way.

I hope you have as much fun reading this as I did writing it- HAPPY CHRISTMAS.

Posted in advice gap, pensions | Tagged , , , , , , , , , | Leave a comment

Beware the vanity master trust


community award winner

Hardly a week goes by without a request to research another vertically integrated master trust for inclusion on the list of employer choices offered on .

It is harder to name an actuarial practice or employee benefit consultant that isn’t offering one of these products than is. Towers Watson and Aon are following Mercer in setting up a Fiduciary Model for their clients while the list of smaller consultancies with skin in the game now includes Xafinity, Lighthouse, Elston, LEBC ,Citrus, Close Brothers and Goddard Perry.

The proliferation of master trusts is not a response to market demand, there is absolutely no evidence of a shortage of capacity among traditional providers, it is part of a general trend among advisers to take a slice of the revenues from the annual management charge (and for the more sophisticated, the net asset value) of funds under fiduciary control.

The “vanity” referred to in the title of this blog, is the pretension to better governance, better investment management and better member services than is available from existing market providers.

So far, our research has revealed no evidence that the governance of these new master trusts is superior to that available from NEST, NOW and Peoples. As IGCs are set up  and as the DWP’s prescription on workplace pensions bite, the argument for a new kind of fiduciary recedes.

As for investment management, the cost of adding an extra layer of over-sight (typically to meddle with asset allocation), has seldom if ever provided value in the long term.

Nor am I convinced that the touch of an adviser, the employment of a third party administrator and the deployment of some pre-purchased technology applications adds up to a good reason for an employer to forsake established players and move to one of these new kids on the block.

Easy come and easy go

To set up a master-trust of one’s own, all that is needed is to set up a company to receive the revenues and wander down to one of the convenience stores that sells the necessary components. Mercer have simply bagged three insurers (Aegon, Zurich and Friends Life) and dressed an existing proposition up with a little tinsel. A trip to Carey Pensions can secure an off the shelf trust structure and a third party administration service while funds platforms are two a penny.

In short, the master-trust is now so easy to assemble that there is virtually no barrier to entry. But once set up, the master-trust is able, within the 75bps charge cap, to become an independent profit generator for advisors bereft of commission options (post April 2016).

If it is this easy to subvert the RDR, it is that easy for Government to close the loophole. Unless these new “vertically integrated” master-trusts can demonstrate value beyond the vanity of the advisor’s self-regard, I see no future for these trusts.

The proliferation of multi-employer master trusts, like the proliferation of single employer occupational trusts a generation ago, has no obvious justification. It cannot improve employer outcomes, member outcomes and it will use up a lot of regulatory time.

The Pension Regulator is worried, and the worries are along the lines of my worries in this blog. There is no obvious way to curb the weekly growth in master trusts other than by putting master trusts under the same scrutiny as group personal pensions. That would mean making them subject to Solvency II, imposing the same standards of governance on master-trustees as are being imposed on IGCs and it would mean advisers managing these trusts on a not for profit basis.

It would probably mean the Pension Regulator giving up any remaining pretence that a voluntary code can work. The Master Trust Assurance Framework would need to become compulsory and – with the need for powers beyond its current scope, the argument for a Pension Regulator supervising this part of workplace pensions becomes untenable.

The “vanity master trust” is not just a danger to employers and their staff, it is a danger to the system of dual regulation in place at present. Unless, the Pension Regulator takes steps to curb master-trust proliferation, it may find itself the architect of its own demise.

Posted in pensions | Tagged , , , , , , , , , , , , , | 6 Comments

The PPF – our great escape!


We get used to talking about the failure of the private sector to deliver proper pension outcomes.

We are incensed by the shortcomings in governance that has allowed well funded local government schemes to feed the City’s insatiable need for fees.

But when we get a public pension scheme that gets it right and uses private sector fund management for the good of members, the body pension and the taxpayer, we fall silent.

So what’s the PPF?

The PPF started on 6 April 2005 in response to public concern that when employers sponsoring defined benefit pension schemes became insolvent, scheme members could lose some or all of their pension if the scheme was underfunded. Besides offering compensation to those pension scheme members affected by insolvencies the Government hoped that the existence of the PPF would improve confidence in pension schemes generally

The PPF pays two levels of compensation:

  • Any member who is over their normal retirement age or who retired early due to ill health will receive 100% of the pension they are currently receiving.
  • Other members will receive the 90% level of compensation capped at a certain level. For the year from 1 April 2011, the cap is £33,219.36 per annum for members at age 65. From 2013, the cap will also increase by 3% for each year of service over 20 years.

The PPF also offers a dependent’s pension of half the member’s entitlement

How’s the Pension Protection Fund doing?

The PPF doesn’t do PR – it tells you how it is and asks you to draw your own conclusions

It’s most recent statement on funding the levy it imposes on surviving pension schemes has been well received.

In its disclosures to the public it is a model of simplicity

• The aggregate deficit of the 6,057 schemes in the PPF 7800 index is estimated to have increased over the month to £221.1 billion at the end of November 2014, from a deficit of £164.9 billion at the end of October 2014.

• The funding ratio decreased from 87.9 per cent to 84.8 per cent.

• Total assets were £1,232.9 billion and total liabilities were £1,454.0 billion.

• There were 4,781 schemes in deficit and 1,276 schemes in surplus.

This may look like bad news, but in the context of the movements of gilt rates (which impact on liabilities as much as equity returns impact on asset valuations), these numbers have been well received.

The transparency of PPF’s approach both to asset/liability management and to the state of the fund has given reassurance to those within the fund and to those advising on it.

And here’s the American comparison

President Barack Obama on Tuesday signed into law legislation that will allow trustees of financially distressed multi-employer pension plans to cut participants’ benefits to prevent the plans from becoming insolvent.

The multi-employer pension provisions are part of a huge $1.1 trillion spending bill — H.R. 83 — that received congressional approval last week.

Under the new law, benefits can be cut if a plan is projected to become insolvent during a current plan year or any of the next 14 years, or any of the next 19 years if the plan’s ratio of inactive participants to active participants exceeds 2-to-1 or if the plan is less than 80% funded.

Participants would have to be given the right to vote on cuts before the benefit reductions could be implemented. However, even if participants rejected the cuts, if a plan is “systemically important” — meaning that it poses a very large risk to the Pension Benefit Guaranty Corp., the federal agency that guarantees participant benefits — the U.S. Treasury Department could override the vote, permitting implementation of a benefits suspension plan.

Certain participants will be shielded from benefit cuts, including retirees age 80 and older and those receiving disability benefits under the plan. Retirees between ages 75 and 79 will face smaller benefit cuts than retirees under age 75.

In addition, benefits cannot be reduced to less than 110% of the benefit guaranteed by the PBGC. Currently, the maximum annual benefit guaranteed by the PBGC to participants in multi-employer plans is $13,000 for a participant with 30 years of service.

Effective next year, the legislation also doubles the premiums multi-employer pension plans pay the PBGC to $26 per participant. The current premium is $12 per plan participant, and had been scheduled to rise to $13 per participant prior to the new law.

(Thanks to Per Andelius for this)

We could sum up more succinctly; “The American equivalent is in a mess”.

It is to the great credit of the successive Governments, the pension industry and most of all to the civil servants who set up and now run the PPF, that we have a safety net that is working.

There are lessons for us to learn.

  1. By common consent, the PPF is working because it has clear targets; it has a timetable to be self sufficient and is bringing down the levy intelligently (read this article by Spence’s Alan Collins). They have created a plan and stuck to it
  2. The PPF is working by converting failing private schemes into a successful private/public partnership. Surely there is a lesson for the tPR as it contemplates the wasteland of derelict DC schemes it regulates.
  3. The structure of the PPF, a Regulatory Own Fund is working well. It admits the assets and liabilities  of failing schemes in a well-defined and orderly way. It is the only model we have of a collective pension scheme that does not require a sponsoring employer. The PPF is a case study for those considering how we can make CDC work (without employer support).


So hats off to the PPF, one of the parts of our pension system that is working well. As we look to 2015 and beyond, we should be looking at the success of the PPF.


If you’ve got this far- you deserve some light relief, here is a great little video of Jerry-baiting British wit by way of some festive light relief!


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

Pension PlayPen wins AccountingWeb community award

accounting web

This time last year I had never heard of Yesterday I heard that I have been named their personality of the year. I am very proud and very grateful.

There are over 400,000 people who receive updates of one kind from Accounting Web. They range from the CFOs of our largest companies to the book-keepers of sole traders. They are the people who run businesses, submit tax-returns , make sure people are paid and increasingly they are the people on whom the DWP, tPR and the pension providers rely on to make our workplace pension system work.

So to be recognised, and for Pension PlayPen to be recognised as a source of skill and knowledge is a real honour.

During the year, I’ve written several blogs for this site and helped promote their “no-one gets left behind campaign both through and through the Friends of Auto-Enrolment. I have made good friends with their editorial team , especially Andy North (who is now building the American version of the site).

I’ve taken a lot from the way they bring differing audiences together to share information and just as I hope some members have learned about workplace pensions, I’ve learned about payroll, accounting  and even Excel skills. This applied learning through knowledge sharing is what social media can bring to the business community and nowhere have I seen it better practices than on this site.

The Pitch

the pitch

Accounting Web is one of several ventures, organised by Sift Media, others are the Business and HR Zones, both of which have been valuable to us.

Business Zone and Dan Izzard, its editor, have for some years been running a nationwide competition for start-ups to display their wares through short, recorded pitches to their peers and to judges.

This year, won right through to the Final and though we didn’t win, we got a lot out of the competition, learning how to pitch our business but- as importantly- finding out what issues and solutions, our peers were facing and finding.

The big picture


It feels shameful that I never knew about all this before this year. Pension people have a carefully crafted cocoon provided them by organisations such as NAPF and the PMI out of which they need not step. The 1.3m SMEs and Micro companies who are still to auto-enrol know nothing of pensions but pensions know nothing of them. With the high fees and high barriers of learning, the pension trade bodies are of little relevance to the 1.3m.

But for the big picture to emerge and for auto-enrolment to work for the chip shop in Accrington as well as the NAPF membership, we need Accounting Web.

That Accounting Web, has welcomed pension people like me, and to my huge delight, given myself and Pension PlayPen a Community Award says a lot.

While Pension People have done little to  reach out, the accountancy profession- including ACCA, the IMA and ICAS have stepped up to the plate. The Federation of Small Businesses, IOD and the chambers of commerce up and down Britain are spreading the work.

The Friends of Auto-Enrolment has not been created by the pension community but by the Chartered Institute of Payroll Professionals.

In the Big Picture, these non pension bodies have stepped up and given us a platform. I don’t think we’ve said thank you and I don’t think we should look this gift horse in the mouth!

So, I’d like to say thanks to your face and give you a big fat Christmas hug hoping that in 2015 you can do as much for pensions as you did in 2014 and that we can continue to work so well together for another year!

mother Christmas

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

“Lest we forget” – can we sweep legacy under the table?




No more self-regarding monkey business please!


Yesterday, I wrote about why a good chunk of the personal pensions sold before 2000 (and a few after) were poor value for customers. The pensions were sold with “a lifetime of advice inside”, scandalously, the advice seldom materialised.

Today I’m going to focus on what good can come of the ABI’s review of legacy charges.

It is quite clear that the review only confirms what we all knew. The insurers have now a year to think about it. What they will be thinking , if I was them, was that they have spent a few quid with Frontier Economics and can walk away from the carnage of the past with impunity.

There is an important issue of agency here. Are the insurers responsible for the delivery of the advice that wasn’t delivered, is this a regulatory failure or should advisers be responsible?

Pragmatically, the advisers are long gone, any attempt to retrieve money from them is bound to fail and the use of FOS and FSCS would be extremely unfair on current practitioners who never profited.

It could be argued that the failure of the various regulators – FIMBRA, LAUTRO,PIA,FSA et al to enforce delivery leaves individual policy holders with the opportunity to band together and mount a class action against the FCA. The chances of this happening are slim to non-existent, it would amount to a general levy on tax-payers to sort out a problem few people even recognise exists.

Finally there are the life insurers including those currently on life-support systems or in communal nursing homes (the Zombie Life companies). These are the members of the ABI who have commissioned the report; they would argue- with some merit- that they paid commission in good faith to advisers who they might reasonably have expected to have provided the advice that policy-holders had paid for.

I am not a lawyer, but there is something not quite right about the life insurer’s position. And this is why I am nervous about the Frontier Economics Legacy report. That all these problems are given the semblance of “just being discovered” is very convenient for insurers. It allows Government to be “shocked” (as Steve Webb says he was) by the severity of the charges and their impact on a generation of savers.

The reality is different. The insurance companies may have booked the profits they are enjoying today, many years ago but they booked these profits in the full knowledge that they were profiting from their policyholders who were not being treated fairly.

To return to the question of agency, where it can be proved that money was being paid to agents (IFAs and direct reps) for services that clearly were not being delivered, did the insurers have a responsibility to whistle-blow, enforce the advisers to advise or call for the policy-holders money back?

I don’t know the answer to that question. But I don’t think it conceivable, having been both on the sell and buy side of this process, that the insurers were ignorant of what was going on.

It is not beyond the scope of Government to ask the insurers for answers to this question. If the OFT report is worth anything, if this or a future Government have courage and if the Regulator is up for it, I think that the ABI and its membership should be called to account.

It would be a setback for many insurers if they were asked to revisit their back-book of front-end loaded personal pensions. Some like Fidelity and Legal & General will escape lightly, others will not.

If the door is left open to policyholders who paid for advice and did not receive it, then the insurers who paid out to advisers will need to contest the question of whether the advisers were their agents. If the answer is that they were- that they were selling policies on a false pretext, then there is a strong case for the liability to revert to the insurer. If the insurers can prove that advisers were deliberately concealing from the insurers what they were (not) up to, then the case for redress from the insurers are weak.

I think it likely that a proper investigation into the practices of the past that looked at what really went on in the late eighties to the end of last century will discover that there was massive collusion between advisers and manufacturers to the detriment of the consumers.

If we are to put the past behind us, I believe all policyholders who have paid more than 2% pa for their pension (excluding the costs within the funds) are due an uplift on their pots or (if they are an annuitant) a cash settlement.

Each application for redress should be taken seriously, we cannot ignore the legacy of our actions and those advisers (including me) who are still around, should play a part in ensuring not just that this does not happen again , but that there is a record of why.


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

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

laugh or cry

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

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

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

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

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

To put this in terms we can all understood.

Lets look at an example.

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

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

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

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

In theory

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

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

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

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

In theory

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

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

But in fact…

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

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

The 80/20 rule

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

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

Did the insurance companies know?

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

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

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

Is this a victimless crime?

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

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

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

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

And what of that advisory promise?

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

The real scandal

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

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

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

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

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

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

A whopping great lie

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

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

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

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

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

Posted in pensions | Tagged , , | 1 Comment

Blurred lines or fuzzy logic – the secondary annuity market – guest blog by Ralph Frank

blurred lines

The consultation on creating a secondary annuity market was released alongside the 2015 Budget. The upcoming consultation had been flagged on the preceding Sunday, an unusual event, by a release on the HM Treasury website. The stated intent of allowing annuity income to be sold is to bring the pensions freedoms resulting from the 2014 Budget to a wider audience, levelling the playing field between those who had purchased an annuity prior to the 2014 Budget and those who had not. The proposed actions are the consequences of a previous action. There might well be a whole series, of potentially unintended, consequences arising from this proposed action.

The 2014 Budget granted freedoms to Defined Contribution (“DC”) savers. Defined Benefit (“DB”) savers were explicitly excluded from directly accessing the freedoms tabled last year. However, non-retired DB savers can potentially take advantage of the freedoms after transferring to a DC arrangement – a non-trivial process. The annuity measures now being contemplated might simplify access to the freedoms for some retired DB savers but not others – a seemingly greater inconsistency than the one these annuity-related measures seek to address.

Pensions arising from DB schemes are either paid from the scheme (perhaps backed by an annuity owned by the scheme) or via an annuity owned by the saver (purchased by the trustees of the scheme to secure the benefit due from the scheme). If the annuity is owned by the saver, it is no different to an annuity purchased by a DC saver. Government recognises this equivalence and “is proposing that only annuities in the name of the annuity holder and held outside an occupational pension scheme are within the scope of these new freedoms”. In short, the freedoms are being extended to some DB savers.

Effectively extending the freedoms to some retired DB savers but not others serves to highlight a number of fresh inconsistencies, including:

  1. Why not allow those in receipt of a pension from a scheme to sell this income stream too? They are receiving the same benefit as an annuitant, just from a different source;
  2. DB pensioners, in receipt of a scheme-based income, are currently prohibited from transferring their benefits to an alternative pension arrangement. Why should pensioners receiving their income from an insurer be treated differently? However, removing the prohibition will bring a host of issues of its own, particularly for underfunded schemes; and
  3. If DC savers can access their savings with little difficulty from 55 then why can’t DB savers have this same freedom too? The current process (requiring transfer to a DC arrangement or, as proposed, purchase of an annuity and subsequent sale of the income stream) is cumbersome and probably costly. Why are non-retired DB savers being discriminated against too?

The freedoms announced in the 2014 Budget fundamentally altered the UK pensions landscape, if only from a regulatory and taxation perspective (the need for financial security through retirement has not changed). As with most changes, a two tier landscape resulted – some do not have the opportunity to take advantage of the changes as a result of a decision made prior to the change (in this case, the purchase of an annuity). Further, annuity purchase was the result of a conscious decision not some mandatory diktat. Annuity purchase has not been compulsory since 1995 (confirmed by paragraph 3.5 of the freedom and choice consultation), a point evidenced by the 25% of DC retirees who did not buy an annuity at retirement (as per paragraph 2.2 of the annuity consultation document). I am somewhat mystified, the pending election notwithstanding, why this Government seems so intent on providing annuitants with a second bite at the cherry – or should that be setting up annuitants to be bitten a second time? The effort seems out of proportion to what the Government itself admits is anticipated to be a relatively niche market (as described in paragraph 2.22 of the annuity consultation document).

Allowing the annuitant to sell the annuity will not cause those who feel they have been ripped off to suddenly feel whole again. If anything, the ‘opportunity’ to sell their annuity exposes them to the risk of being ripped off again. If the Government does feel the urge to intervene, perhaps it can come up with some arrangement whereby annuitants can modify their contracts to include a spouse’s pensions, escalation and/or underwriting if these features are not present in the existing contract and the annuitant can demonstrate that these features were not offered in the original sale? Any changes would be made on a ‘cost-neutral’ basis. The demonstration that features were not originally offered and that changes have been made on a cost-neutral basis are two minefields in themselves and well beyond the scope of this short blog post.

The proposal to allow annuitants to sell on their annuity income is fraught with potential pitfalls on multiple levels, many of which have not been raised above. I hope that Government, whoever that might be by the end of the consultation period, uses the exercise to analyse the potential consequences of the proposed changes in detail. Seeking to achieve further consistency between different groups of savers with similar fundamental positions might lead to a whole host of unintended issues. Some savers will not be able to access the freedoms that others were granted by the 2014 Budget. How about accepting this inevitable consequence of the 2014 Budget changes rather than compounding them by making further changes that then lead to other issues?

Posted in pensions | Tagged , | Leave a comment

Why I’m against this pension commission

2015-03-31 07.17.09

I am stuck in the middle of Scotland, it is April and I am snowed in high above Loch Rannoch. Tired of walking through blizzards I am attending to my e-mails which includes a missive from my friend Steve (the Pension) Herbert.

Steve, Jelf’s thought leader has come out in favour of a Pension Commissionas has Malcolm Mclean, as has the DWP Select Committee.

“We recommend that the next Government take steps to establish an independent pension commission at an early date after the General Election and certainly by July 2015.”

I do not agree with any of them. We need a pension commission like my computer needs another firewall. As Steve Webb points out “it will only slow legislation down “.

There has been a false consensus for the past five years between the DWP and the Treasury. Steve Webb has been able to sweet-talk auto-enrolment past the Treasury and Business and Skills despite it adding to the red-tape agenda and draining George’s coffers with up front tax-relief.

George Osborne has been able to pull pension bunnies from the budget hat and Steve Webb has had to swallow his tongue. If you want a recent example of what’s been going on, witness Webb at the PPI a week before the budget hoping that the Treasury would abolish the Lifetime allowance.

This is how things are in politics, for a Pension Minister to do the job, he or she needs to be an operator. I am quite sure Osborne and Webb don’t have much time for each other as people, but I’m sure they respect each other as politicians.

There has been nothing getting in the way of the coalition consensus, unlikely as that consensus seemed five yeas ago,

We have had a political consensus because Steve Webb has come up with policies that Osborne could not gun down. The State Pension reforms have been properly costed, there is a mechanism to move back our retirement ages if we continue to live too long and the safety valve is to abandon the triple lock.

The “pensions revolution” is of course the change in the tax treatment of our DC retirement savings. I sense that neither Steve nor Malcolm are convinced they are a good thing. If all we get is what we’ve got, I’d agree.

But we are getting new pensions which will bridge the gap between the unloved annuity and undeliverable mass drawdown. The answer is not cashing out – it is a return to collective pensions. Webb got his Pension Schemes Act, Osborne got his Pension Taxation Act. I doubt we’d have had either with a big-fat pension commission moaning away.

It took a couple of minutes for Osborne to demolish our at retirement system, it will take three years to replace it. But the site has been cleared and foundations dug. The creation of collective schemes which can provide us with target pensions may take three years to legislate for (provided some pension commission doesn’t interfere).

The Pension Herbert is quite wrong to throw pot-follows member and defined ambition  to the mercies of a pension commission. These are policies that have been arrived at through the offices of a democratically elected Pension Minister acting in consultation with his department and the pension industry.

Finally, let’s put to bed this argument that there is too much change in pensions. What has happened over the past five years has happened because there has been no fundamental change in DC over the past 25 years. The RDR, auto-enrolment, pension freedoms and the rebuilding of the DC framework through CDC mean that Britain can once again have a pensions system to be proud of.

We may have some more work to do cleaning up LGPS and creating a fairer spread of wealth between public and private sector pensions, but that’s for our next Government. Right now, we should be applauding the change not bemoaning it.  A big-fat pension commission would never have allowed the progress we have seen.

I’m sorry that Steve feels he needs a pension commission for him to talk to Government, he should get out more! I have been to the DWP six times this year and the Treasury three times, Benefit Consultants have never had such access to Government.

We are about to elect a new Government, that may be the same as the old Government or may be something new. Whatever it is, and up here in Scotland it looks very different, it will be the Government of the people of the United Kingdom of England, Scotland, Northern Ireland and Wales.

The pension policy we adopt going forward may be shaped by the existing coalition, a Labour party with or without Gregg McClymont, UKIP, the DUP, Plaed Cymru and the SNP(not forgetting the Greens).

For Pensions to declare UDI from all this seems arbitrary and arrogant. We are one nation in retirement and to consign pension policy to a junta of the great and the good from our little world will do nothing to restore people’s confidence.

Ironically, in arguing for a maintenance of the status quo, Steve and Malcolm are calling for fundamental change. Malcolm is even calling for a fundamental review of the tax reliefs surrounding pensions! That’s another problem with pension commissions, everyone secretly wants to play pension minister, collectively they end up like the tigers running round the tree till they turn to melted butter. If you are too young to remember the story of Little Black Sambo, you can read it here (and watch the video at the end of this paper).

Change is part of things, changes in pensions will happen, whether a quango called the pension commission is formed or not. If the next George Osborne decides to throw a hand grenade into the coy-carp pond, there is nothing that a pension commission could do- other than to moan.

The exemplum of good pensions governance has been the system we have had over the past five years which has seen the introduction of the first part of auto-enrolment, the creation of a new and better state pension system, a proper system of governance for personal pensions, a curb on advisory, fund and transactional costs and the foundations of a new way of spending our savings.

All of these policies (and I do exclude pot-follows-member which I don’t get) have taken us forward. The department of pension irresponsibility continues to play silly buggers with the LTA and annoy everyone with its showboating on pension freedoms but that is the price we will have to pay.

So my message to Steve and Malcolm is to stop worrying and continue doing the great job you do for pensions. With the likes of you two, that grumpy Higham character, Ros Altmann, Jo Cumbo and a fair few others, pensions is more than capable of looking after itself.

Above all, let’s make sure that we get another proper pensions minister not some dim-witted apparatchnick who couldn’t get into the Treasury’s first team.

2015-03-28 04.48.42

Posted in pensions, Politics | Tagged , , , , , , , , | Leave a comment

Two thirds of SMEs are pension virgins.

what to do

New research is out on the purchasing intentions of the remaining 1.2m employers who aren’t “in” to auto-enrolment.

Of the  SMEs surveyed who are yet to stage, two thirds (66%) don’t have any existing pension arrangements for their staff while 8% have a stakeholder pension scheme set up but don’t have any members of staff in it. A quarter already offer a scheme to a proportion of their workforce.

When it comes to selecting a pension provider for auto enrolment, over a quarter (27%) of those who are yet to stage still say they haven’t given any thought to how they’ll go about finding a pension provider, down from 44% in 2014**. One in ten (12%) are going to search the market and do the research themselves, up from just 4% of those firms surveyed in 2014.

When it comes to seeking external advice, over a quarter (26%) intend to get help from their accountant up from 14% in 2014. One in six (16%) intend to rely on their existing provider, down from 22% in 2014. Just 6% plan to speak to a financial adviser up from 5% in 2014.

We are beginning to get a picture of what next year will be like and as this research included employers with up to 250 staff, expect to see the percentage of pension virgins increase still further.

There are some worrying trends here, not least the increased reliance on accountants for pension advice. A year blogging on has convinced me that accountants do not want to be accountable for the pension decisions taken by their clients. Any “advice” from an accountant is likely to be generic and not directive.

Where NOW are worried, and are right to be worried is that the only provider mentioned on the Pension Regulator’s website and in the Pension Regulator’s letters to employers is NEST. NEST is a good pension scheme but it is not the only scheme and is unlikely to be the best for all employers.

The Regulator is making it plain to employers and accountants and those who run their payroll bureaux that while other choices can be simplified, the choice of provider has to be taken by the employer.

NOW properly argue that without any proper means to make an informed choice, most of the pension virgins will be spoilt for choice but denied an informed choice.

The idea of a simple list of providers may seem attractive at first but does it do anything to make an informed choice? Unlikely!

What is needed- and available through – is a means of properly comparing pension providers with due regard to the employer’s workers , payroll and internal resources.

We are fascinating by getting the right employers with the right schemes. There is diversity in providers and providers are increasingly promoting themselves as niche players. If your firm wishes to operate within Sharia principles then the Islamic Pension Trust should be on your shortlist; if you are a member of the Federation of Small Businesses , you should be aware of the deal they offer with Scottish Widows and if you are a charity of social housing organisation, you should be considering Smarter Pensions (by Pensions Trust).

That Pension Virgins will chose their first (and hopefully lasting) partner on the back of a letter from the Pension Regulator or a deal done by an accountant on a golf-course is unspeakably lousy governance. Yet it seems to be the order of the day for a substantial number of employers staging next year.

It is not too late to turn this matter round, but it will need a remarkable surge in interest among employers for that to happen. There is a long and unhappy history of financial decisions being taken without proper information and without due care and attention.

As we stagger from one mis-selling crisis to another, it is time for the Pension Regulator to intervene on a pro not a re-active basis and start pointing employers who don’t know where to go, to services like who do!

Posted in accountants, advice gap, auto-enrolment, DWP, Payroll, Pension Freedoms, pension playpen, pensions, Pensions Regulator | Tagged , , , , , , , , , , , , , , , , , , | Leave a comment

Getting to grips with the changes in politics


When asking how people would vote yesterday, Krishnan Guru-Murthy encountered confusion and bewilderment. In his words “I have never seen before so little idea what to do”.

The ideological certainties of left and right are confused by political marketeers targeting soft votes and ignoring core support. Understandably this makes for frustration and accusations of being taken for granted by those in safe seats and cynicism from those who see themselves as targets of a politician’s munificence.

The end result is a statement, as made by a member of my family that “they’re all bent and I’m not voting”. I think a lot of people feel that way right now and it will be interesting if their numbers will increase or decrease as a result of the next five or six weeks.

Who will manage us best?

I sense we are going through a readjustment from simple party choices to complex multi-party choices. Cameron’s insistence that this is about a choice between him and Milliband doesn’t ring true to me at all. More like it’s a choice between whoever will work with Cameron and Milliband and they might include Liberals, SNP, Plaid Cymwru, the Greens, UKIP and the DUP.

The political leaders will be people who can bring others with them and manage effectively through consensus. You may not like the croneyism of it, but the coalition of the last five years has been effective, at least in joint management.

Making the choice easier

In my field , pensions, things are much easier because we have had a good minister who, by common consent, could manage the pension brief for any party. Were Steve Webb re-elected, or even kicked into the Lords to govern from there, there would be relief among most pensions people.

I am not able to vote for Steve Webb but I can vote for his party and quite likely will. Steve makes my choice easier (though I hope to give further support to the shadow pension minister Gregg McClymont- who I hope upon hope gets returned by the electors of Cumbernauld.

My choice is easier as I can see that a strong pension minister is needed to manage the reforms in train and to do something to stop the Office  of Pension Irresponsibility- the Treasury.

Many of us will vote on single issues.

Europe, immigration , the budget deficit, jobs and most of all the NHS and welfare. Those, like me, voting on pension issues, will be in a tiny minority but the mosaic of individual decision making creates a picture which- in years to come – comes into some kind of focus.

Many of us will not vote

Where the difficulty of choice leads to apathy or hostility against the political process, many people, who would have voted, may chose not to. This does not add to the mosaic and does not give us a big picture. It simply concentrates the power of decision making on a smaller voting pool.

People who spoil ballot papers, do no more than waste a couple of seconds of the counter’s time. Their votes will be cast into a waste paper bin and forgotten.

Why I will vote

The democratic system we have in this country is not perfect, for many years I have wanted a better voting system but I sense that there is less need for proportional representation and more need now for some kind of online voting.

I will vote because I am part of a mosaic and though when they look at the big picture, no-one will see the piece I represent, without that piece, the picture would be diminished.

I will vote because for generations my family has voted and I do so to honour my father who stood for local and national office. Respect for the achievements of earlier generations is a driver

Finally, I think the new politics is – once we have got to grips with it – much better. The fragmentation of political parties , the movement away from ideology to management and the concentration on single issues are by-products of a new social empowerment where every individual has his or her voice.

Power to the people?

The ability for people to influence Government through what they write, say and how they get their message out, has increased over the past ten years. We have opportunities to have our say on everything from radio shows to twitter and there’s a fairly good chance that if we say it well, it will be retweeted or repeated and we may get a call for us to appear on something or write for something and become a part of the wider debate.

People are no longer frightened or in awe of the TV, it is no more than a big You-Tube, the amplification of Facebook and Twitter can give bloggers more influence than politicians.

The new politics

We have new ways of doing things and coming to grips with these changes is challenging. At 53, I may be half way through my voting life and am as interested in what is to come as in what has happened. I see many, my father among them, totally mystified by the new politics in which they seem to play no part.

I see my son setting out in his career, so familiar with the new campaigning trumpets that to print a poster or a leaflet is not even on his agenda. Talking with him, it is about getting things done, a party label is merely the brand by which he and his peers can get themselves heard.

He is standing as a conservative at his school on pragmatic grounds – his views are those of his father and his grandfather and are very far away from the conventional image of the braying Tory-Boy.

My hope

I am looking for some honesty in this election from certain politicians who will accept the new conditions of power – that majority Government is likely over, that minority Government is unsustainable over a 5 year fixed-term and that coalition is not only likely but desirable.

Such a politician, and they do not just have to be from a smaller party, is someone who I would trust and support.

Posted in pensions | Tagged , , , , , , | Leave a comment

Why Osborne’s so wrong to cap our pension ambition.


I wanted to know the amount I would earn if I started on £25,000 when I was 25 and got steady wage rises of 5% pa till I was 65. The answer, according to this little modeller , is just over £3m.

So an average person on average income over an average working life earns and spends around £3m.

Put like that, capping the amount we can spend for the rest of our lives at £1m, which is what the new Life Time Allowance is asking us to do. Is limiting our capacity to spend in retirement to about a half of what we earn and spend when at work. (I’ve adjusted the numbers to take into account inflation plus growth on the £1m pension pot.


I have always found that I spend more when on holiday at work, there is just more opportunity to spend. So it’s even more incomprehensible that a conservative politician should define our ambition for a retirement income by a lump sum so low.

Put another way, our lifetime earning capacity is by far our biggest asset, the value of our capacity to earn dwarfs our capacity to save or build equity in our houses.

Relative to £3m and for people on more than average earnings, multiples of £3m, the £1m LTA is now a kind of basic private pension.


The way that Osborne talks, the 4% of us who save all our lives to get more than a million into our pensions might as well be lighting cigars with $100 notes in the Cayman islands. The implication is that we are screwing the poor by taking too much of the pension pot.

But nobody saved into a private pension unless they were paying tax in the first place. I am tempted to suggest that the majority of people George Osborne could have pissed off my this tax measure are well out the other side of paying tax on their earnings (or even their savings).

So who is this a tax on? It’s a tax on “hard working families” who want to wind down from work in comfort. It is grossly misjudged, as was the cut in the LTA from £1.8 to £1.5m.

Steve Webb is quite right in stating that tax relief should be limited on contributions and should be progressive, encouraging those earning at basic rate to save more. Webb argues for a flat rate of tax relief at 33% capped by a reduced annual allowance so that no one gets more than a £10k subsidy from anyone else to build money up for retirement.

He is right, pension planning should be about diverting a slice of income every year into a savings plan that grows in time to provide a capital reservoir which can be drawn as per an individual’s choice.

There are some who may want to invest a windfall to catch up years when they cannot contribute. But the majority of us must bet into the habit of saving at least 8% pa of our lifetime income into a tax-advantaged plan if we are to have any chance of financial comfort in our later years.

And most of us – under auto-enrolment – are getting there. The new normal is to save. But if the new normal is to have to fret about the possibility of saving too much and accidentally triggering 55% tax-bills, the joy of the thing is gone.

Of all the ways of limiting pension tax relief, the capping of the annual allowance is the most regressive. It sends out the message that investment growth doesn’t matter, that cutting costs doesn’t matter and that any kind of financial windfall resulting from markets or an unexpected capacity to contribute, must now be considered in a jaundiced light.

I hope that Gregg McClymont and Steve Webb will rally some support against the new reduced LTA, it is a pernicious tax that deprives us of pension ambition and is a charter for the tax dodgers and tax-scamsters who- even now will be working out new ways for the super-rich to subvert the legislation.

We should scrap this LTA altogether and allow people to enjoy their pension savings fearlessly.

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

Help is on its way.

katie morley

I took pleasure in  watching  a balanced positive program on the Pension Revolution last night. Well done ITV.

Three of pensions best spokespeople, Tom McPhail, Ros Altmann and Katie Morley talked to people of an age to do something positive with their pension savings and talked “options”.

What came out of the program was how pleased people were to have their choices laid out in front of them- this will come as welcome news to Pension Wise. In my experience, people like to be presented with choice though they don’t want to be left with options, they want one of them to magically turn into a solution.

In 30 minutes, you can only provide the equivalent of a brochure, though an example of scamming was included by way of balance.

If Katie, Tom and Ros had been with me at 8 am in the morning, I could have shown them a group of civil servants who are dedicating the next three years to making sure there is a third choice for people winding down in later years.

I’m talking about the DWP Pension Strategy Team who have listened and- contrary to some trigger happy reporting in the pensions press – are now turning the collective aspects of the Pension Scheme Act into the detailed law we need to help.

By help, I mean real help. Not a means to line the pockets of the financial services industry with product that seems to benefit everyone but the people who invest in it, but a simple system of pension spending that allows people to convert their pension pot into a regular income stream.

The new emphasis within the DWP on focussing CDC as an option for those with pension freedoms marks a substantial shift of emphasis in how CDC will be targeted.

The DWP team we met with cannot of course make this happen on their own. They will need the support of the politicians who will govern the DWP when a new Government is formed. I expect that whatever new configuration of parties , there will be scrutiny of the work on collectives.

But this new found focus on providing a solution to the people who do not want to be trapped in an annuity or to manage their own pension , will , I am sure, see CDC through.

I also found a realism about the delivery of the new CDC regulations. As I had suspected, it will not be as simple as allowing schemes to be set on an actuarial whim. Allowing a third way between DC and DB will mean not just writing the legislation for this new way, but re-writing the legislation for DC and DB. This will be a major task that is unlikely to be completed in a year.

It took a few minutes to open Pandora’s Box and let the pension freedoms fly. But it may take a few years to get the solutions people need to move past drawdown and annuity.

When I watched the Pensions Revolution I was struck by the honesty and decency of our society. There followed the grilling of Cameron and Milliband by Jeremy Paxman and a studio audience. The democratic process that enables programs like these to be made and allows people like me to write as I please, is something we can be very proud of.

If part of the price we pay for this freedom is a fiendishly long and tortuous legislative process, well that seems a price worth paying.

So I will continue to support the development of CDC throughout the next parliamentary term. Even if it takes most of that five years to get the CDC up and running, that is no great hardship, if what we get is a robust and long-lasting improvement to our choices in retirement. If CDC ultimately proves successful, it may be an alternative to our DC products in accumulation, maybe even to those areas of DB which are most troublesome.

There are international models such as New Brunswick which we can follow as we get further down the line, but for now, I am focussing on how we spend our DC pots. The good news is that help is on its way!

katie morley 2


Posted in advice gap, Pension Freedoms, pension playpen, pensions, Popcorn Pensions | Tagged , , , , , , , , , , , , , , | Leave a comment

No Prime Minister! guest blog from Ralph Frank


The Prime Minister focused on the long-term nature of the 2015 Budget in a recent piece he published in the Sunday Times. He saw the Budget as “rewarding those who work hard and do the right thing. For too long, those who did the right thing were punished. Savers got penalised for saving”. He seems to have missed the reduction in the Lifetime Allowance (“LA”) for the second Budget in succession and the third time in four years. The cut in the LA has coincided with falling bond yields and a corresponding diminution of annuity rates, compounding the effect of the smaller LA. Those who have done the right thing by saving into their defined contribution pension continue to be punished – if anything, even more so.

The reduction in the LA was explained in the Budget (at paragraph 1.232) as being necessary to protect public finances from the growing cost of Income Tax relief for pension saving, with around two-thirds of this cost apparently going to higher or additional rate taxpayers. This relief was quoted as ‘costing’ Government £34.3 billion in 2013-14, up from £30.8 billion in 2009-10. It was not mentioned that the relief was £30.8 billion in 2007-8. It would also be more meaningful, to my mind, to look at the net impact of pension policy rather than just the relief side.

Contributions into pension arrangements are made gross of tax and accumulate free of tax too – the two sources of the costs previously mentioned. However, once these accumulated amounts are paid to the recipients, the receipts are taxed as income. Government effectively invests for the long-term, both in the financial security of its citizens and in recovering the tax previously deferred. Tax receipts on pension payments rose from £9.3 billion in 2007-8, to £10.7 billion in 2009-10 and £13.1 billion in 2013-14. The rate of growth on tax receipts significantly outstripped that of costs over the corresponding period.

The balance between tax earned on pensions in payment and tax deferred, rather than lost, on contributions and accumulation depends on the age distribution of the saving population. An ageing population of savers will likely see an increasing amount of tax paid relative to that deferred, as savings are converted into income. This swing towards a relative increase in tax paid was the path the UK was on prior to the introduction of Automatic Enrolment (“AE”). AE has resulted in a reversal of the decline of the number of (pension) savers. The ‘shock’ to the ratio of those drawing an income relative to those still saving is a one-off event and the increase in this ratio will likely resume once the initial roll-out of AE has been completed in 2018. The ratio will only reverse thereafter if there is a change in the country’s demographics and the birth rate picks up again.

The impact of AE might not be as significant as anticipated as far as tax relief on contributions are concerned. Over half of the tax relief is claimed by Employers. Corporation Tax will be levied at 20% from 2015/16, in line with an individual’s Basic Rate Tax. Some retirees will have tax rates higher than Basic Rate Tax so deferral will result in a higher rate of tax being paid on the related pension contributions made by Employers, whether these are ‘true’ Employer contributions or Employee contributions made via salary sacrifice. The retirees paying tax at a rate above the Basic Rate are more likely to be affected by the reduction to the LA, so cutting the LA will likely deprive Government of this tax uplift in the long-term.

The repeated cuts to the LA contrast with the treatment ISAs have enjoyed under this Government. Annual savings limits have been increased by around 50% over the past five years. ISAs have been made more attractive in other ways too. ISAs result in a more immediate tax take than pensions, being funded from after-tax money – consistent with a shorter-term view.

The pension freedoms announced in the 2014 Budget are also consistent with a shorter-term view. The Government anticipates the freedoms will be of net benefit to the Exchequer as long-term income is converted into short-term windfall, if not necessarily Italian sports cars.

The Government might well have adopted a long-term approach to managing the economy in many areas but I do not think this is the case when it comes to defined contribution pensions. Auto Enrolment is being successfully rolled out but that programme pre-dates the current Government. The changes made since 2010 have given savers more freedom (to pay tax) in the short-term but have penalised long-term saving in capital terms and even more so in income terms. The raft of changes over the past two Budgets have also increased the uncertainty related to pension saving. What will it take to get Government to take a long-term view of provision for later life, with corresponding incentives and regulatory stability?

Posted in pensions | Tagged , , , , , , , , , , | Leave a comment

Help us spend a penny


Britain is entering its final week of financial constipation following over  a year of holding in the urge to splash the pension cash.

Speculation in the financial press is reaching fever pitch with the announcement of the Pension Wise telephone number being greeted with an on-line drumroll.

Will insurers open for business on Monday 6th or will the bank holiday trump the pension freedom?

All of this speculation is, of course, totally facile , whipped up by me in the hope that you might read the rest of the blog.

But you get my point. The sensationalism that surrounds the change will give way to the cold reality that , save for a few changes in price points, the product choices facing those with DC pension pots remains stark;- an annuity or self managed drawdown.

Faced with two options, both of which seem perilous, most people will- as suggested to them by Steve Webb- stay in bed and not turn down the covers for a couple of months.

Some will blow their pots and someone somewhere is going to be in the currant bun driving a yellow Lamborghini past the Treasury at 9am on Tuesday 7th April.

That will be the only visible evidence of our new found freedoms.

In the meantime, two things have to happen

  1. The financial services industry has got to wake up to the new reality- that if people have money in an account- they want and expect instant access.
  2. Most people want a replacement income in retirement so they can pay the monthly bills and organise their finances as if they were still working.

Whatever the conjecture about working longer and smarter, the simple truth is that most people expect their savings to be paid to a schedule of their creation, but a schedule

To meet the expectations of the millions the financial services industry is

  1. Going to have to get better at paying people on demand (have a look at First Direct someone)
  2. Going to have to organise a scheduling system so people can feel comfortable about how they get paid with a reasonable degree of security.

I am about to go down the DWP – not for my Giro- but to discuss “where to now for CDC’. Frankly I am sick of the sound of those three letters which spark controversy whenever they are mentioned.

CDC says nothing to people – (nor do DB, DA or DC for that matter.

What I’m really going down to the DWP for – is to see if by this time in 2016, we can create rules to allow people to get paid their pension pot as they want it to be paid in a reasonably secure manner.

Though our meeting is billed as Friends of CDC meet DWP, it is for me an opportunity to remind people that paying people in retirement is about putting the right amounts in the right hands at the right time. It is not about de-risking employer’s balance sheets or reducing the fiscal stress of the pensions taxation system and least of all is it about lining the pockets of actuaries, investment consultants and financial advisers.

If we can put aside all the local interests for a morning and just concentrate on the main event, we will make progress. But anything less than a full on focus on the need of the UK post 55 population to spend their pennies will be a lost opportunity.

Posted in pensions | Tagged , , , , , | 5 Comments