More trust, fewer Trusts please!


Take a look at this table (reproduced with the express permission of the Pension Regulator).

Number of schemes big

It tells us that we have too many private sector trust based DC schemes (it also tells that we don’t know the difference between a GPP and DC contract based scheme but that’s for another day!).

Why does this matter? Because the costs involved with maintaining 37,960 occupational DC scheme is so burdensome that they are creating an impediment to the new world of workplace pensions we know as “auto-enrolment”

Here is what the Pension Regulator wants to happen to ensure that proper consistent governance is maintained throughout.


Governance triangle


That’s a lot of governance.

More governance than can possibly be borne by small employers funding the maintenance of trusts charged with absorbing the Pensions Acts, implementing and maintaining Minimum Quality Standards (the charging cap etc), producing a voluntary governance statement to independent auditors, signing up to new codes of Assurance and finally answering to the Pension Regulator on all of the above (gulp!).

I’m not a fan of long sentences but I hope the syntax suggests just how indigestible these new duties will be.

I am quite sure that many independent trustees will be looking at this with some glee. As I have stated in a recent article, the business of compliance makes commercial sense, provided that employers are prepared to stump up for it.

And this little table breaks down what the duties of these occupational DC trust boards are going to be. This goes way beyond the traffic lights of the 31 good characteristics, these duties are going to  consume consultancy fees at an alarming rate and encroach upon internal management time which might otherwise be devoted to running the business.



I am not saying that these duties are not absolutely necessary to properly running a scheme, but I am saying that repeating this job 40,000 times is likely to have a negative impact on our private sector productivity and profitability.

We cannot have 40,000 cheap ,well governed pension schemes in the UK. The Dutch have 350 and reckon that is three times too much.

So many schemes keep so many scheme secretaries, independent trustees, consultants, administrators, auditors, fund salesmen and customer relationship managers in a job.

But they do not add anything to member outcomes. In fact they are already severely restricting the capacity of their sponsors to fund contributions as every pound spent on governance is a pound not invested.

They are , for the most part , vanity projects. Established to encourage recruitment and retention of staff, they say to stakeholders that the employer aspires to be the kind of company that can afford to run such schemes. If you are a major retail bank and spreading costs across 100,000 staff, you can run scheme governance like this, but if you bash metal in Dudley with a £10m turnover- you can’t.

As the title of this article suggests, we need to restore trust in pensions; we need more trust. But we don’t need to bleed the system dry by running so many trust based schemes.

While many of the 40,000 are set up for the private use of the owners of the company, a huge number are still in charge of the pensions of current and former staff.

These schemes have a stark choice facing them this year;

Either they get their governance in order or they fold assets into a master trust or allow individuals to take their pots into personal arrangements.

Either way, a proper cost benefit analysis of the merits of continuing to run a trust based occupational DC scheme must start and finish asking the question “is it in the member’s interest?”





This article first appeared in thinking



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Governance not glumervance


I am for good DC governance but I am not for DC glumervance. Glumervance is “glum governance” as preached by the puritan new model trustee.

This is how on trustee firm explained the new measures for savers in the DWP Command Paper

“the Government announced that it will be ramping up the pressure on the trustees of Defined Contribution pension schemes….” and continued. “We’d love to help you comply with these new rules”.

So what should we do? Outsource governance to the (paid) experts (able to withstand Government pressure)? De-risk and turn what once was a philanthropic activity into an “exercise in glum”?

This is not what’s needed.

Pensions have been written under trust law to protect and enhance the interests of the trust’s beneficiaries. Governance should conducted enthusiastically; compliance should be the framework not the end product.

The DWP’s command paper talks of conflicts of interest. But here’s a conflict no one wants to talk about. The more you highlight the pressure of the job, the less likely you will be to see home-grown trustees. The rise of the professional trustee is like the growth in grey squirrels; it’s at the expense of the red squirrels who drew us to the woods in the first place.

It’s different with DB; the titanic struggles over funding require professional trustees as referees and coaches. But in DC, where the risks like the charges are borne by the member, the Trustee can concentrate on a simpler process of improving a member’s financial circumstances in later life.

If we allow DC governance to be overtaken by the grey squirrels, then we risk turning it into a box-ticking, risk-reducing , joyless business which will replace “member’s interests” with compliance and “member engagement” with “trustee duties”.

Which is not to say that trustees need to be light-weight. Those governors we most admire are able to transcend rules and through the force of personality produce great things for their beneficiaries.  Alan Pickering, Paul Trickett and Alan Herbert-these are red squirrels, light-hearted but deeply serious. Ask any Londoner for their favourite Guvnor, chances are they’d name Boris.

Our current pension minister’s a red squirrel; he’s entertained us with fire extinguishers, baked beans and Lamborghinis but never lost focus on delivering a pension system that works.

The Pension Play Pen’s a red squirrel; it’s never taking itself seriously but it has 4,500 souls committed to the task of “restoring public confidence in pensions”.

You don’t have to be a puritan to be effective! The scaremongering that goes on in our industry in the name of governance does us no service. We must stop talking of governance as simply risk reduction and promote instead the positives of financial security in later life.

Sadly, the majority of trustee boards are simply not up to this job. The best they can aspire to is uninspired compliant box-ticking. To misquote a puritan- “they have sat too long- in the name of God (they should) go!”…. as they have in the Netherlands where the number of pension funds in the  has fallen to 380 (of these 70 are in the process of wind-up and a further 60 are in special measures). KAS Bank estimate that in three years’ time, only 100 will remain.

Here’s my manifesto for change!

Less Trusts- more trust.

Outcomes first – rules second.

Governance not Glumervance.

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Time for an upgrade?

pensioners-seaThe fireworks came from the Treasury but amidst the noise and smoke, the DWP’s Command Paper, poses some challenges for many of the 10,000 employers who’ve staged auto-enrolment.

By April 2015, we can expect workplace pensions qualifying to be used with auto-enrolment to have headline charges under 0.75%. By the same time the following year, all schemes will need to be cleansed of commission and Active Member Discounts and more is expected relating to “hidden charges” by April 2017.

Pensions 2.0, 2.1 and 2.2 are in plan.

By happy coincidence, and I’d like to think this genuine joined up Government, April 2015 is also the date by which the Guidance Guarantee is to be implemented. Delivering 30 minutes of guidance to all workplace retirees is going to created considerable interest and not a little disruption, workplace pensions, or at least how to spend them, will be high on the “water-cooler agenda”.

Sensible employers who have taken decisions to purchase pensions for their staff where charges are, or could be in excess of 0.75% pa, will need to move to pensions 2.0 within 12 months. Fresh disclosure to staff of the new charges affords such employers an opportunity to promote a “good just got better” story. Managing out this message is important. We do not want to see workplace pensions damage employer relations. April 2015 is a good date to implement an upgrade, not just to your “at retirement” procedures but to your workplace pension scheme too.

There is no need to panic, but there is no need for complacency either.

Those organisations who have non-qualifying features in their workplace plans would be well-advised to get in touch with their advisers now and re-establish their terms of business to retain the relationship on a fee-paying basis. Where no agreement can be reached, it may be time to find a new adviser or engage with the insurer direct.

In extreme instances, where the plan cannot be moved onto a qualifying basis, employers may need to move to a new provider.  For the most part, what is needed a bit of bodywork, not a new car!

Employers who are smart, will get their upgrade early. We can expect to see considerable strain on insurers in the run up to April 2015 and again the following year. The smart employer will want to be on the front foot, controlling the process, ensuring best terms for staff and managing messages at their pace and not at the pace of the insurer.

So here is a five point action plan for any employer who has a workplace pension being used for auto-enrolment

  1. Wise up, read the DWP’s Command Paper. If your scheme is clean, you should give yourself a pat on the back
  2. If not, speak with your advisers, this is not a time for recriminations but you are the client – and it’s your compliance head-ache
  3. If you can’t reach agreement, go to your provider, they need you to be compliant and should help
  4. If you get nowhere with your employer, then it’s time to shop around- assuming the shops are open  (If you want a 24/7 convenience store try
  5. Make sure you have a project plan to migrate from pension 1.0 to 2.0.

Employers are critical to this process. There will be some reluctance among advisers to accelerate the termination of commissions and AMDs but employers need be in no doubt that the “further measures for savers” outlined by the DWP are going to happen and sooner rather than later.


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Research shock- employers do care about the pensions they provide their staff

workplace pensions

“Selecting the right pension scheme for auto enrolment is important and has long term implications for employees. Taking time to review the options that are available in the market is sensible and planning ahead will help to keep stress levels to a minimum.” – Morten Nilsson – NOW Pensions


“Given the complexity of the pensions sector and the long-term commitment required to properly monitor the value of savings, most employees are not sufficiently knowledgeable or engaged in their work based pension to achieve good outcomes”  -OFT -Sept 2013



Here are the detailed findings of a survey commissioned by NOW and carried out by BDRC Continental of 450 employers with 250 or less employees


No. Employees
Total Sole trader 2-5 6-10 11-50 51-250
Employers surveyed 450 50 75 75 150 100
Employers in UK (000′s) 1721 375 674 351 257 64
I haven’t given it any thought yet 751 275 231 159 81 6
44% 73% 34% 45% 31% 10%
I intend to use my existing scheme provider 373 35 196 62 54 25
22% 9% 29% 18% 21% 40%
I intend to seek help from my accountant 242 19 120 55 41 7
14% 5% 18% 16% 16% 11%
I intend to seek help from an adviser 88 - 34 26 18 11
5% - 5% 7% 7% 17%
I’m going to search the market and do the research myself 70 15 7 26 20 2
4% 4% 1% 7% 8% 4%
I’ve already made a decision and secured a scheme 33 - 2 1 21 9
2% - * * 8% 14%
I intend to speak to my payroll provider 16 - 7 6 2 1
1% - 1% 2% 1% 2%
I’ll ask for advice from my trade body 12 - 8 2 2 -
1% - 1% 1% 1% -
I’ll talk to my peers and seek recommendations (referral) 2 - - 2 - -
* - - 1% - -
Don’t know 134 32 70 11 18 2
8% 8% 10% 3% 7% 4%


What this tells us

A significant proportion (14%) intend to get help from their accountant and 5% are going to consult an IFA. A small proportion (4%) are going to search the market and do the research themselves. Only 2% have already made a decision and secured a scheme.



And here are what the same sample answered to the question “How important do you consider your choice of provider to be?

No. Employees
Total Sole trader 2-5 6-10 11-50 51-250
No of employees surveyed 450 50 75 75 150 100
Total number of employees in the UK 1721 375 674 351 257 64
Very important 420 100 134 78 76 32
24% 27% 20% 22% 30% 50%
Important 567 53 226 178 87 23
33% 14% 33% 51% 34% 36%
Neither important nor 226 46 100 36 41 3
unimportant 13% 12% 15% 10% 16% 5%
Not important 137 33 66 17 19 3
8% 9% 10% 5% 7% 4%
Don’t know / haven’t thought 371 143 149 42 34 3
about it 22% 38% 22% 12% 13% 4%


What this tells us


Four in ten (44%) small and medium sized companies haven’t given any thought to how they’ll go about finding a pension scheme to comply with the new auto enrolment legislation.


Despite a large proportion of SMEs admitting they are yet to think about their pension scheme, over half (57%) of firms surveyed think that their choice of pension provider is either important (33%) or very important (24%). Only 8% think it is unimportant


This is what these employees responded to the question “Do you think offering a good quality pension provides an opportunity to improve a) employee retention, and b) the attractiveness of the company to your employees


No. Employees
Total Sole trader 2-5 6-10 11-50 51-250
Total in the survey 450 50 75 75 150 100
Total number of companies in the UK (000s) 1721 375 674 351 257 64
Yes, I think it will help with employee retention 693 97 301 162 95   38
40% 26% 45% 46% 37% 60%
Yes, I think it will help to improve the attractiveness of the company to potential employees 553 75 187 165 92   34
32% 20% 28% 47% 36% 53%
Not sure 867 243 345 125 132 22
50% 65% 51% 36% 51% 34%


What this tells us


Four in ten (40%) believe offering a good quality pension scheme will help with employee retention and nearly a third (32%) think it will help to improve the attractiveness of their company to potential employees.


The Pension PlayPen is the only website in the UK dedicated to helping SME’s select workplace pensions. Our principal users are Accountant, Advisers, and employers direct. Within the latter category we see purchasers within employers coming from Finance, HR and Payroll. For very small employers , the principal purchased is taken to be the MD/Founder.


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“More choice – no guidance” – the basic state pension top-up.

cashThe basic state pension, second state pension and soon to be single state pension are annuities purchased from the State by National Insurance Contributions.

With all the noise around the annuities you purchase from insurance companies, we can easily forget we are purchasing annuity every year we participate in the UK National Insurance system (even if we are not in work).

Though it doesn’t cost you this much in national insurance companies, the value of your full basic state pension, were you retiring today is around £180,000 – in other words that’s how much you’d have to pay for it if you used an insurance company.

I’m not a party to the economics of the social security system but we now have a little insight on what the DWP reckons a fair “offer” is based on current market condition

Here’s it is (the bits in italics are from the DWP press release)

Pensioners and those who reach pension age in the next 2 years will be able to get up to £25 of additional State Pension a week.

So for £1,300 pa (who works in weeks except footballers?), the up front cost is £22,250.  The great thing is that the income is indexed, the not so great thing is that this payment is not going to attract tax relief nor can you have a quarter of your contribution back tax free.

So far so good.  It is important that people pre-plan their financial affairs and it’s good that the offer is being announced well in advance of launch. (see below)

There are relatively  few people who will quality but they include women and the self-employed who may have limited entitlements to the Basic State Pension and SERPS

Basically if you are a

  • a man born before 6 April 1951 (ie 63 or older)
  • a woman born before 6 April 1953 (ie 61 or older)

you can buy between October 2015 to April 2017 as the State Pension top up will be available from October 2015 to all those reaching State Pension age before 6 April 2016.

 The scheme will allow people the opportunity to get inflation-proofed additional State Pension by making Class 3A Voluntary National Insurance contributions.

The cost of a State Pension top up is based on a person’s age and takes average life expectancy into account. For a 65-year-old an extra £1 of pension a week will be £890, whereas for a 75-year-old the contribution rate for the same amount of pension is £674.

A calculator is available online which illustrates the contribution rates based on age and how much people wish to increase their additional pension by at

The top ups can be inherited, with a surviving spouse or civil partner entitled to at least 50% of the additional State Pension


We suspect this is a great offer. Assuming that private sector annuities remain as depressed as they are today. A great offer for a limited number of people who would otherwise have purchased a private annuity.

It would cost a whole lot more to buy this annuity from an insurance company (at today’s rates) and as it’s paid out with your existing state pension, it’s dead easy.

So it is going to have to be incorporated into the new Annuity Guidance Framework being established by the FCA and become one of the options  discussed.

But the problem is it is marketed like a dead fish on the slab. There is simply no indication from the Government that this is a good deal, no advice or guidance as to whether the rate used to calculate the cost represents value for money.

It would be very helpful if the Government Actuary, who set the rates, would give people like us some more information to help us give guidance to members, whether the “us” means DC trustees, members of the insurance IGC or one of those people who are going to be on hand to deliver the “guarantee of guidance”

All we get from the DWP is a press release ending with political platitudes

This measure along with the newly announced Pensioner Bond that will be available from National Savings and Investments in 2015, demonstrates the government’s commitment to a fairer society by improving outcomes for those in retirement and providing increased flexibility for people to make the most of their savings.

My guess is that the DWP are worried that there will be losers in the transition to the single state pension in April 2016 and that this group of soon to be pensioners are most at risk.

The DWP can hardly bang on about the private sector being untransparant , when we have so little transparency on how the rate was set and whether it will be adjusted if private sector annuities become cheaper.

With choice comes responsibility, choice without guidance is dangerous, let’s hope that the DWP will be a little more forthcoming about this choice and just why they are promoting it.

This article was first published at

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At last – good “pension news” for employers



It was only a month ago when the ABI produced there now infamous “10 problems with Steve Webb’s Collective DC plan”. Re-reading it explains why Osborn, the FCA and the general public have been merciless on insurers since the budget.

The article is hopefully a nadir, let’s hope that we never again see such a combination of cynicial obfuscation, unremitting negativity and simple untruths.

Of all the rubbish in the ABI’s paper, it is the assertion that CDC places a much greater burden on employers that I’m going to tackle here. The ABI argue that employers would have the obligation to explain the risks of CDC, the new Annuity Guidance Framework being put together by the FCA, will see this obligation pass to insurers (IGCs) and the trustees and master trustees of occupational pension schemes.

So out with the noisome negativity of 2013 and in with the good news from a new financial year!

So here are the 10 reasons why employers are quids-in under the new pension rules


  1. Pension contributions are seen as “reward”. Employers are under an obligation to set up and fund pensions for their staff under auto-enrolment. The new reforms are popular with   pensions are more popular, the whole business of auto-enrolment has shifted from compliance risk to reward opportunity
  2. Employing older people will be easier. Good pensions release employers from employing staff who don’t want to work (anymore).
  3. Reduced obligations at retirement ; the budget actually reduces the obligation on employers to provide guidance for staff (this will be provided “free” by trustees or providers).
  4. Improved options for drawdown; if you buy the  “good for staff, good for us” line then the innovation on the way (such as “predictable drawdown- AKA- CDC) are good news too.
  5. Overseas experience(1); although there have been claims that CDC schemes in the Netherlands have cut benefits, this simply isn’t true. The Dutch CDC schemes have maintained public confidence through the financial crisis- popular sentiment for the reforms is likely to be sustainable.
  6. Overseas Experience (2); The Dutch (and Scandinavian) DC models which involve collective drawdown and risk pooling are complimented by the American and Australian experiences where it’s left to individuals to manage retirement wealth. Again the feedback is positive – more positive than pre budget UK.
  7. Opportunities for paternalism; most large companies have benefited from looking after their pensioners in retirement. The budget restores opportunities for large employers to set up their own collective decumulation vehicles and take on the level of risk that suits them.
  8. Small companies can “level up”. The multi-employer master-trusts (NEST , NOW, People’s etc.) are able to offer the same quality of management as large employer decumulation schemes (see 7 above). The pension apartheid between small and big is disappearing.
  9. An end to mis-selling; the bad will and benefit devaluation caused by poor sales practices at retirement and before should be a thing of the past. If the FCA get the new Annuity Framework right, people will be free to make informed choices and financial mis-salesmen will be banished from the workplace.
  10. A happy workforce; Pensions have been more about strikes than good labour relations of late. The breakdown of trust caused by poor pension practice has been a hindrance to productivity and pension contributions have been a waste of time to the shareholder. If you believe a happy workforce is a productive workforce and that workplace pensions can make people happy, you’ll be happy to run them and fund them.

I know that many people reading this will think that I’ve been on the happy juice, but I can assure you it is 10.30 on a Saturday morning, and it being the Saturday of the Grand National, I’m off to Betfair!

Don’t worry- be happy!



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“The predictable alternative to drawdown”



“Drawdown scares me”.

It scares me because I am on my own, it scares me because I get a bumpy ride and most of all it scares me because I know that if I drawdown at a minute of an hour of a day when the market spikes downwards, I may never recover.

“I want to drawdown my income in retirement, but I don’t want nasty suprises”

Which is why I’d rather be doing this drawdown thing with other people. I want “average everything”, I don’t want to be the best or the worst, I want to be in the middle - I want things to be predictable.

Now some would say I want to share risk. If they mean by this I want another generation to take on my risk, I say nah! I don’t want to dump on my kids.

I want to pool my risk with my peers, with all the other people drawing down from our pool of money. Risk pooling (mutual insurance) -yeah , risk sharing (dumping) nah!

Now I know that I’m not like Joe down the road who wants to buy an annuity because he can’t bear the idea of anything but the same pay cheque each month.

And I know I’m like Sally in the house opposite who manages every penny of her finances to the minute. I want to be Mr Average, the bloke who gets a decent whack from his retirement fund and draws it down in a tax-effecient way according to his needs.

I don’t want nasty surprises, I don’t want to run out of money in my nineties, I don’t want to borrow money against my house, off my missus. I want a fair deal , a predictable income - is that clear enough for you?

“So what are you going to offer me Mr Pension Man?”

CDC means nothing, it is just a codename, like PADA was a codename for NEST. What CDC should be is “a predictable alternative to drawdown”. Defining CDC by what it can do makes more sense than defining it by how it does it. I’m more interested that a Dyson can clean my carpet or dry my hands than in the technology behind it- though I like to know there is technology behind it.


So here’s what I can offer you.

  1. A predictable but not guaranteed income
  2. Protection of your income if you outlive your expectations
  3. Options to increase or decrease your income according to your needs
  4. Opportunities to draw lump sums if and when you need them
  5. Options to insure health related events-  (long term care, immortality)

Put all those things together and you come back to a simple means of organising and managing your finances in later life.

And , because you like to know the technology behind the Dyson, here’s what goes on “under the bonnet”

  1. Money from people’s pension pots is pooled into one big pot
  2. Money is  managed on a prudent basis by expert fiduciaries (to the highest standards)
  3. You own a part of the pot- your record is adjusted according to what you drawdown
  4. You are regularly offered insurance if you want greater certainty about health events
  5. You have the option to transfer-out if you think you can do things better on your own
  6. The liabilities (eg expectation of future pay-outs) are calculated by Actuaries
  7. Reporting on the assets and liabilities is regular and to everyone.
  8. Those who want to be more involved in the management of the assets, liabilities and reporting can do so as member nominated fiduciaries.
  • I don’t have a preference if these kind of arrangements are set up by insurers or as mastertrusts,
  • I don’t mind if they are for profit or not for profit and I don’t mind if they are connected to existing workplace pensions (GPP’s mastertrusts or single employer occupational schemes).
  • I don’t mind if the money that is managed comes from DC or DB arrangements (so long as any guarantees are properly bought out).

There is nothing in law to stop these schemes being set up from April 2015, it will probably be easier to set them up using the regulations that govern occupational pension schemes (TPR supervised) but the FCA can easily regulate an insured version governed by the new IGCs.

Finally, I don’t think there are any particular barriers to this happening and being developed in the next twelve months.

As I said at the top, “drawdown scares me” – but I want control of my finances in retirement and I don’t want to annuitise anytime soon.

Today is April 5th 2014, by April 5th 2017 I will be 55 and I will want to drawdown without getting scared.

So , for no reason other than self-interest, I will be campaigning to have a predictable alternative to individual drawdown. I am quite sure that all my friends who own SIPPs and manage their own investments will want to go it alone and drawdown using individual policies, but I’m happy chucking my money in a general pot and paying  someone else to do all the hard work of managing assets , keeping records and predicting future liabilities.

“Drawdown for Dummies” – seems a better working title, I’m sure someone will come up with something as memorable and elegant as “NEST”, for the moment I’ll stick with a “predictable alternative to drawdown”.


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Standard Life comes up trumps


Four years ago I sat in a crowded room in the DWP’s offices, to hear insurer after insurer refuse to commit to providing a service to small and medium sized companies, let alone the micro employers of which there are 800,000 with less than 10 employees.

Today (well yesterday if you trawl their website as I do), Standard Life launched their good to go product direct to the SME market. Standard Life have decided to stay the course.

Good for them.

Check out their new website for employers looking to auto-enrol at  It makes for good reading

Good to Go is Standard Life’s   contribution to solving the capacity crunch and not a moment too soon as we hit the first spike of SME stagers.


auto-enrolment traffic

auto-enrolment traffic

The product is available to all employers with more than 5 employees (though you’ll have to wait your turn if you are more than 12 months from staging).

The product you are offered is guaranteed to meet the minimum qualifying standards laid down by the DWP in their recent command paper (see here).

The product will not cost more than 0.75% of member funds , though there is an employer cost of £100 pm to cover the cost of auto-enrolment compliance.

Better terms may be available for large contributions per member and even better terms if you use one of Standard Life’s partnering IFAs.

There are some conditions, you have to contribute at a higher rate than the statutory minimum (the standard formula is 9% of basic pay with  a minimum phased contribution of 2% from the employer).

There is little flexibility for unusual payroll periods (lunar monthly, fortnightly) and there has to be a minimum average basic per member of £13,300.

But that said, this is a ball-busting good alternative to the Mastertrusts for SMEs and one that should be considered as part of any search.

The Pension PlayPen was the first organisation to view this new product and it gets a tick from us. If you are an employer struggling to get the best pension deal  for your staff, you’ll be pleased this product will be integrated into any day now.


Workplace pensions just got a little better (again)




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Who will be cleaning out the stables in the next two years?



There are more than 10,000 employers who are running saving schemes for their staff  as qualifying workplace pensions.

The introduction of minimum standards for these schemes in “Better workplace pensions, further measures for savers“, begs the question – who is going to upgrade those schemes that don’t meet these standards.

I began writing about this problem in the summer of 2012 when I attended a seminar where the IFAs were suggesting that by establishing a commission scheme  prior to the introduction of RDR (which banned such schemes) employers could “pre-pay” for corporate and individual advice and bill the cost to the DC pots of staff entering the scheme.

I was shocked that the majority of employers in the room seemed quite comfortable with this idea and said so. Never mind the dirty looks and legal threats I got, that’s history now. It was short sighted at best and brand ruinous at worst, for IFAs to follow commissions over the cliff.

Over the past twelve fifteen months, Steve Webb has maintained a grim determination to rid workplace pensions of commission and of its accomplice , the active member discount. No commission funded adviser should have been surprised to have read

  • The Government agrees with the OFT’s analysis that some charging structures are inappropriate for the automatic enrolment environment.
  • From April 2015, no qualifying scheme will be able to contain a consultancy charge structure.
  • Between April 2015 and April 2016, any commission payments will be subject to the overall default fund charge cap, set at 0.75 per cent of funds under management, on member-borne deductions in the default funds of qualifying schemes.
  • From April 2016, no qualifying scheme can contain member-borne commission payments to an adviser.

The question that remains is who will oversee the orderly transition , not just for those of the 10,000 schemes with commission and/or AMDs and the many thousand more which are intended as Qualifying Schemes, that will not make the grade.

Some IFAs will stick around and help with the transition, but many  will simply walk away, why be paid for dismantling the apparatus on which they had built their livelihoods.

Some firms who have booked future commissions into their accounts will have to take an impairment, some may become insolvent as a result.

There is no obvious capacity in the market to pick up this work or any great appetite from employers to pay for it.

The insurers who are responsible for paying this commission are faced with an interesting challenge. The major commission paying life offices interested in AE qualifying schemes  are Aviva, Aegon, Scottish Widows and Scottish Life. Standard Life,Zurich and Legal & General have relatively small commission books.

Talking to senior executives of the commission paying offices, it’s clear they are looking forward to turning off the tap and see the commission saved as a shareholder windfall. This is a dangerous thought process, simply trousering the commission suggests that it was only paid to IFAs as a sales incentive and that the customer will get the same service without the IFA. If this is the case it flies against everything life companies have talked about the role of advisers in the workplace.

But it won’t be as simple as that. Firstly there is work to be done in re-establishing the schemes, beyond turning off the commission tap. For one thing the AMDs will need to be removed and this communicated to staff – this may require a price increase for those at work.

Then there is the requirement on the IGCs of the insurers to ensure that the schemes on their books do not have Total Expense Ratios of more than 0.75% by this time next year.

Thirdly there is the need to speak directly to the customers who are orphaned by disenchanted IFAs and replace the customer management that was previously supplied by the adviser.

In her blog in the Spectator, Ros Altmann explains

the so-called Retail Distribution Review ended commission-driven ‘independent’ advice, but the insurance industry continues to by-pass advisers and slip commission to others who can sell their products without any advice or quality checks.  It can be workplace auto-enrolment schemes that force workers to pay the costs of setting up their employer’s scheme through ‘adviser charges’ . It can be annuity sales where ‘non-advice’ brokers were rewarded with handsome commissions (or tied deals to sell potentially unsuitable annuities to pensioners). But the flawed commission model has been kept in place – to the detriment of ordinary customers, in too many cases.


If the insurance companies see a windfall from not having to pay out sales commissions then they should be disabused of that notion at once. Some of the savings  can be used to employ qualified advisers, paid by salary, to provide customer relationship management to the schemes affected by these changes. The remainder can be used to bring down charges on existing plans, at least to the 0.75% cap and in many cases well below.

But there is still an enormous gap between what is needed and the capacity to deliver. On we set up a simple modelling tool to help employers establish whether their scheme will meet the minimum guidelines – “Let’s rate our pension”, it deals with governance, administration, charges ,charging structures and more or less replicates the review process that a fee-based adviser would take a client through to ensure its workplace scheme is fit for purpose.

The output of the test is a score out of a hundred applied by the user to his or her scheme. Should the score be below 75, we recommend a conversation with an adviser or if no adviser be found, with the provider.

It may be time to revisit this little modeller!

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Screen Shot 2014-03-31 at 08.31.01


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Is CDC dead? – not according to Kevin Wesbroom in this great new post!

Screen Shot 2014-03-30 at 19.23.20Is CDC Dead after the Budget, in the light on newly offered flexibilities? Most certainly not!

The Budget stops the “requirement” to purchase an annuity. It has not been a requirement for a long time, but it has been the only effective option, and a powerful default option, for most retiring DC members. But the Budget has not taken away the need for a large number of people to generate an income from their DC pension savings, and CDC has a key role to play here.

For many people, the Budget flexibility will give them an opportunity to “cash out” at retirement. This will typically be individuals at both ends of the income scale. For people on low incomes, with relatively small savings pots, their best strategy will almost certainly be to cash out their savings and to spend it in a relatively short time. These people are protected from poverty in retirement by their reliance on the enhanced single State Pension – now set above the means testing threshold. Pension saving is now a way of accumulating a lump sum on retirement to have some fun with.

At the other end of the income scale, people with very large DC pots will probably roll over out of their employers plan to a SIPP or other Decumulation strategy offered by their adviser or other intermediary. They will value the new found flexibility and can incorporate it into a personalised financial planning strategy that will continue throughout their retirement.

As ever, the true need for pensions will centre around the “squeezed middle”. These individuals will want to use their retirement savings to generate an income to live in retirement – but they will also want to use some of the Budget flexibilities to cope with life after they retire. They could use part of their DC savings to buy an annuity – but many will not, or will defer this until much later in life.  They will be looking for some form of income generating solution – and we can expect a proliferation of market innovation to fill this need, with guaranteed products, with profits annuities, variable annuities and newer strategies all coming into play. And CDC has a role to play here too.

Many employers will take the view that their role in pension savings is simply to contribute – what individuals choose to do with their retirement savings is no concern of theirs. Others will take a more responsible role and will see that their role is to help individuals to generate a stream of income in retirement – we could call that a pension! This is more than paternalism – it is recognising that it suits employers if their employees can retire in an orderly fashion. Employers set up pensions today because they can do a lot of the thinking for individuals, and arrange matters better on a group basis than an individual basis. That is why they negotiate better investment solutions on behalf of members, and why some of them will look to put in place better retirement income solutions for members. Market innovation will undoubtedly give rise to multiple approaches – but CDC can have a strong role to play here. It deals not just with the investment process – more effectively on a collective basis than an individual basis – but it also takes away what will become an increasingly complex decision making role in relation to Decumulation.

We can envisage that CDC will form part of a core delivered by an employer. Consider the changing income needs of a pensioner, and how individuals will meet those needs. The diagram below is taken from our 2014 Conference series which was arguing for pension flexibility! On top of the newly enriched Single State Pension, will sit a CDC “core” – paid for by the employer, with no cash option, and with contributions of say 8% of pay. Individuals can save more themselves –perhaps even matched by their employer. These individual savings – the golden box in the diagram – will be highly tax efficient: tax relief on the way in, tax free roll up, tax free out (up to 25% of total pension value) with full unfettered access to the remainder of their DC pot, after the Budget. The Budget flexibility means that individuals can address their variable, changing needs in retirement, with the security of a basic retirement income from the CDC core and state pension. 

Screen Shot 2014-03-30 at 19.23.20

We can also consider CDC in the context of how DC pension investment strategies will change post Budget – some initial thoughts are set out in the diagram below. Some schemes will change their “exit” strategies to deliver cash, as discussed above. Some people will still purchase annuities. But many will want the income solution – which could involve CDC, either throughout the membership, or as a specific decumulation strategy.

Screen Shot 2014-03-30 at 19.25.09 

Some other Budget related observations:

Decumulation strategies need to cover not just pension related matters, but also non pension assets, given the substantial increase in ISA limits and increases in personal allowances

Workplace strategies – combined pensions and corporate ISAs – can be expected to become much more popular, given the increasing numbers of people cut out of pension provision. We already had younger workers for whom pensions were remote and high earners taken out by the Lifetime Allowance. To this we can add anybody who accesses their pension pots after age 55, while still working; they will almost certainly not be able to make any further pension savings.

Solutions to outliving savings will become more attractive – such as Older Life Deferred Annuities (OLDA) from age 80. These could be combined with death in service premiums to reduce the cost. Of course CDC addresses outliving savings, and in a more efficient way by pooling longevity risk, than individual solutions.

Long Term Care solutions will be needed and expected by the Government, given the greater flexibilities individuals now have.

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“Better workplace pensions – further measures for savers”

Blue Skies Ahead

Blue Skies Ahead

Recognise the title?

It’s what the DWP chose to call their Command Paper on charges.

This paper is not a justification for a charge cap, it’s a new framework for DC pension governance.

It’s gone un-noticed but only one chapter of the seven in the DWP’s Command pater “Better workplace pensions ;further measures for savers” is about the charge cap.

The title is very specific, this paper aims to provide those “saving” for retirement better workplace pensions. It is complimentary to the Treasury Paper, Freedom and Choice in Pensions.

In this blog, I pick out what I consider to be the key changes brought in by this paper, I rate the abolition of commission and AMDs and the charge cap itself as hardly worthy of a mention. If the guiding principle of the post April 2015 DC governance structure is “putting the member’s interests first” how can these have survived?

The DWP is about how you save it and the Treasury about how you spend it, the Pension Regulator is about accumulating capital and the FCA about decumulating capital. If  it is this simple, I am happy with split regulators.

The Cap is ,in any case,an irrelevance to new schemes. I can take you onto and guarantee your workforce  four quotes for an auto-enrolment scheme. I  do not anticipate that the four providers quoting on a universal basis will leave the market anytime soon (though only one is pinned to the wall on that).

There are upwards of ten further providers who our rating team consider fit for purpose. They will exclude you on certain grounds

Smarter pensions will exclude you if you are not a charity or a not for profit social housing group.

Legal & General will exclude you if you have less than 50 eligible jobholders in your workforce assessment.

Scottish Life will exclude you if you are less than 6 months from staging.

I could go on.

My point is that there is currently no shortage of capacity, there is however a lack of confidence among providers (concerned about governmental interventions) among advisers (concerned about what they can advise on) and among employers (concerned about purchasing the wrong thing).

Clearly, dumping upwards of 1m employers on NEST is not a good policy decision for the DWP, it needs confidence among all three stakeholders that there is choice in the market , not just now but going forward.

Which is why we need these “further measures”.

As an insurer I would look at my responsibility to set up an IGC with some trepidation. The constitution of the IGC has to ensure it is properly independent from the insurer and it’s Chair will have the responsibility to produce “a clear independently audited annual statement” that the group personal pension has acted in the member’s best interests.

These statements will, if we have anything to do with it, come under intense scrutiny. Advisers will be taking their responsibilities to their clients, the employers who enroll their staff into these pensions, equally seriously.

As the sponsor of a mastertrust I would be equally concerned. The “vertically integrated masster trust” where profit is driven not just from the mastertrust fees but from the asset management (most insurers have one) will need to pay particular attention to conflicts of interest.

As with the IGC’s, advisers like First Actuarial will be scrutinising the mastertrusts , measuring them against their own calibration in a very public way.

The duties on both IGCs and Mastertrusts are onerous;

  • a public statement on the reason for the design of the default investment option
  • monitoring of the performance of the investments
  • scrutiny of the financial transactions administered within the funds (at member and fund levels)
  • monitoring of charges within the (default) fund
  • monitoring of costs incurred by the (default) fund

At a very minimum they will need to have an independent investment adviser and lawyer.

These duties will require skill and expertise among the fiduciaries (whether corporate or individual). This doesn’t  not come cheap. In order to carry out the work and report on it, these costs need to be borne by members within a tight charge.

The paper makes it quite clear that single employer occupational schemes will have the same burdens placed upon them. I am quite certain that the majority of such schemes will read the DWP’s command paper with more than concern. If trustees are not up to the job, they had better consider consolidating their schemes as soon as possible as the timetables for the implementation of these reforms is tight (April 2015).

It is not for nothing that the second chapter of the document (after the introduction of minimum quality standards) is devoted to scale. The DWP make a compelling case for the extinction of the small DC occupational pension scheme- few will mourn its passing.

But for me the most important chapter of this long paper is chapter 6 “transparency in workplace schemes”.  I quote from the paper

  • Providers of workplace DC schemes would be required to disclose full information on all charges and costs in a standardised and comparable format to trustees and Independent Governance Committees. We would welcome views on how this could operate for unbundled trust-based schemes, including mastertrusts.
  • Providers and trustees would be required to provide information about charges and costs to employers before the employer makes a choice of scheme and on an annual basis thereafter. This information will be made available in a standardised comparable format to ensure that employers can assess likely value for money offered by schemes and make appropriate choices.

The implications are clear. In the post 2015 world

  1. the decision making is at the employer level
  2. choice is predicated (“comparable”,”each”, “appropriate choices”
  3. full disclosure is required to fiduciaries, they choose what to disclose to sponsoring employers.

This is a new world of purchasing where the individual is reliant on a hierarchy of governance beginning with the employer – relying on the fiduciaries and ending with the Regulator/Government.

This is a healthier and more robust model than what we have today. It is a clear model for advisers to work with and it suggests that at last we have a regulatory framework for savers that is measured and understandable.

Taken with the work done by the Treasury (the detail of which will be established by the FCA’s  “New Annuity Framework”, we can at last set about “restoring public confidence in pensions”

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9 days that shook the (pension) world.



It began with the budget and ended with an FCA probe on Zombie funds. On the way we have had an 111 page paper that provides an ongoing framework for pension governance , bans pension commission and caps provider charges on auto-enrolled pensions. Even for a sector accustomed to regulatory change, these are a lot of interventions to digest, Tom Mcphail sums up how many of us feel

It needs an overall perspective. For once it appears that the Treasury and the DWP and their respective task-forces the FCA and the Pension Regulator, seem to be working together and producing coherent joined-up legislation.

Of all the many things that I could focus on , there are three stand-out changes  which will result from the implementation of these proposals.

  1. A shift from selling to buying, from being told to making choices, from a captive to a free market.
  2. A sea-change in governance, from adviser led to fixed fiduciaries, pensions will in future be governed independent of commercial interests and for the member.
  3. A savage assault on bad practice, especially among insurers and their asset management businesses.


A shift to buying

The Osborne reforms in Budget 2014 have been universally acclaimed as a political masterstroke, they are not universally liked or seen as right for the country (read here), but nobody is suggesting that by allowing those with small pots the freedoms of those who have large pots, Osborne hasn’t improved the perception of pensions and the coalition.

I asked “what took you so long?”, because of the 1.5m “fallen” in the carnage of the last five years, people who no amount of reform can bring back from Zombie annuities purchased at the wrong rate, at the wrong time , often in the wrong way.

The empowerment of the ordinary person to manage  her or his own financial affairs in later life according to means, fiscal efficiency and personal preference appears to me God given. I don’t want to carry an analogy of George Osborne to St Peter too far, but on this occasion he does appear to have opened heaven’s gate.


A sea change in governance

A detailed analysis of the DWP’s Command Paper; Workplace Pensions, further measures for savers is an (over) long , frustratingly repetitive but ultimately rewarding work which nails almost all the big issues that impair our pension savings.

It takes on the great vested interests, the ABI, the IMA and their distributors the advisers and shifts the power base of workplace pensions away from the distributors and to the fiduciaries. The long chapters establishing the regulatory framework for Independent Governance Committees, examining the conflicts of trusteeship within vertically integrated master trusts and establishing clear measures to ensure transparency both in the governance process and in each aspect of the performance of the workplace pension is a tour de force.

No mention here of the 31 Characteristics or the loathsome 6 DC principles, this is a new ,much simpler framework that brings the clear thinking of the FCA and deep understanding of the Pension Regulator together.

I feel at last that the member stands some hope of protection – naive as that might sound.


A savage assault on bad practice

I have not read the FCA’s paper, just reports on it in the Telegraph and follow ups as in the Reuters summary you can find on the link.

The wider point is that the insurance industry has had a kicking in these 9 days and not before time. Explicit in the the Treasury Paper and implicit in the DWP paper is a criticism of insurers not for what they have done but for what they have not done. In the case of the Zombie Paper to come, there may be accusations of malfeance but the Treasury and DWP are not after blood. They will cut off bad practice by suffocation.

Legal and General reckon on a 75% drop in annuity sales from April 2015 (and presumably a large fall in the interim period).

On our Pension Play Pen linked in group discussion board, Phil Londy, CEO of Royal London (Scottish Life) argues that the cap is an uneccessary assault on insurance company’s solvency. I am sure he is right, I am sure Steve Webb agrees. The point is that the ABI ended up giving politicians no choice, so unacceptable had their behaviours come to the general public that they had to be caged by a charge cap.

The years of putting the adviser/shareholder/board/senior management in front of the interests of the customer are now coming home to roost. I am genuinely sorry for Royal London who are doing their best to fly the flag for insured mutualism, but they are now suffering the sins of their fathers and the generations of policyholders who have paid the insurer’s bills are now catching up with them, waiving pitchforks above their heads.


So 9 days later, how do I feel. Like Tom I am a little shell-shocked, but unlike Tom, I have been on holiday, from the hills of Perthshire you get a little perspective on London and even Edinburgh. Our Government has  made changes to the way pensions work , are seen and will be used.

Now it is time to put those changes into place.


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Annuity reform- payroll needs to be in the front seat!

Pitlochry Golf Club. Temporary HQ or the Pension Plowman

Pitlochry Golf Club. Temporary HQ of the Pension Plowman

Yesterday I wrote about the positives of the proposed abolition of compulsory annuitisation for the life insurers active in the UK pensions market. Today I want to share thoughts on payroll, who are always the last to be consulted and the first to be dumped on , whenever new legislation is in the offing. It won’t please my friends in payroll to hear that a lot of the heavy-lifting will be their job. But as I said at the Payroll World conference and several times on this blog, there is only so much tactical work payroll can do before they become strategic! The negative for payroll is more hard work, the positive for payroll is the opportunity to take over the pension function within the organisation. But “back to grunt” – a phrase which someone in payroll should patent - what extra work do we see coming payroll’s way? There’ll be more business as usual contribution work – there’ll be new work paying pensioners.

Business as usual

Most payroll managers have now staged auto-enrolment, if your firm hasn’t – it’s probably because you use a third party service. So most payroll managers are about to see a lot more interest from staff in pensions. Wether auto-enrolled or not, people will be picking up the message put out by PWC earlier in the week, that pensions is about to become the most efficient savings route for those in work. With this increased interest , expect to see demand to vary personal contributions, maximise efficiency by switching to salary sacrifice and plenty of one off contributions. You need rules to govern what members of your scheme can and cannot do but beware, restrictions may cause resentment in the workplace “you can’t do it because payroll can’t/won’t handle it” is not the way to improve your department’s image. As far as business as usual is concerned we expect to see progressive payrolls taking a “can do” attitude to personal contributions but expecting credit for doing so from colleagues and those at the top.

Pensioner Payroll

The proposals in the budget give the same freedoms to draw down money as there are to contribute it (the only cap on drawdown is that you can’t go into the red -unless a pension overdraft facility is in the super-small-print!). This is not a banking opportunity, though banks will undoubtedly think it is! We would be very surprised if we don’t see a menu of options being presented to staff as they retire.

  1. Buy an annuity as usual
  2. Drawdown from your pot at a guided rate (the Government Actuary already sets rates for each age of person.
  3. Drawdown at a rate set by you
  4. Leave the pot to roll up and take lump sums as and when
  5. Liberate everything day one and either buy a Lamborghini or buy to let property (or other)

L&G , who have cornered the annuity market in recent years, reckon that the numbers buying annuities will fall by 75% and as an increasing number of those retiring were putting off buying anything, this suggests that an even higher of those drawing income from April 2015 will be doing so using a guaranteed annuity.

The guided rate option has DEFAULT stamped all over it.

The drawdown at a personal rate is the smart option. Those who can be bothered to work out their own tax position and drawdown within their current band, will do so. The smartest will be planning ahead according to needs - some putting money aside for extreme old age and long-term care and some drawing heavily in the early years on the assumption that later life opportunities to spend become more limited. Those who take occasional lump sums will be those with least need of their DC pension- typically those who have private wealth or decent alternative income sources (DB, buy-to-let etc) The liberators will usually have to pay a hefty tax bill to get their hands on their money so they will have to be pretty feckless or have a lot of conviction in their investment strategy to use this option.

So how does this touch payroll?

With a massive switch between the 500,000 retiring each year (not to mention the pent up demand of those who’ve been putting things off), someone is going to have to administer all this work. The most obvious candidates are the exiting pension providers, the insurers and the new mastertrusts. Expect many people to bring together (aggregate) their savings into one pot and drawdown from that. The very big companies will do what they have always do, run pensioner payrolls of their own- these may well become aggregators in their own right. But also expect many new operations to spring up, there will be a frantic battle over the next ten years for people’s retirement savings with wealth-managing IFAs, asset managers and insurers all competing for the job. The one thing they have in common- they aren’t much good at payroll! Which is why I see those who know about how to run payrolls, whether they are payroll software companies, payroll managers or provide outsourced services. This is an opportunity for payroll people to take a front seat. Payroll  may not drive the bus but payroll people can do the navigation. Payroll people were back-seat drivers in the auto-enrolment consultation, They should make  sure this doesn’t happen again.


This cow would not last long in North Korea with that haircut

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Why we expect insurers to bounce back stronger (from these reforms)


I met this fellow yesterday on the road to Pitlochry


I’ve just read yesterday’s press release from PWC’s Jonathan Howe commenting on the pension reform announced in this year’s budget.

“There is no doubt that the changes present very significant challenges to life insurers with a heavy reliance on annuity business, but many are already taking a glass half full approach. Yes, there will be losers, but opportunities exist for those who develop innovative new products and services for customers. Those who retire will still need investment options – they will need to make investment decisions, for an appropriate yield, for the rest of their lives. We believe despite short term pain life insurers can have long term gain. After all, there are thriving life insurance industries around the world without compulsory annuity purchases.

“Whereas an annuity is sold once, with a new range of products, potentially required at different stages during retirement, there are likely to be many more touch points with customers, increasing engagement. The increased flexibility of the rules should also increase the number of people saving in pensions, which will now provide a savings vehicle with few limits. With contributions also paid from pre-tax salary, this could effectively replace ISAs as the choice of saving vehicle for many.

“All of the opportunities for innovative new products go hand in hand with a need for life insurers to focus on their customers and align their digital strategy with their customers needs. In our view the changes announced in the budget will accelerate the urgency of this need.”

The highlight is mine and refers to a concept that has been gestating in my head for a few weeks.

If you were to flip a conventional pension savings product through 180 degrees you would have the pension decumulation product of the future.

Substitute for regular contributions, regular payments; for lump sump contributions, lump sum payments and contribution caps , withdrawal caps and you have the basic architecture of a personal pension in payment.

The customers are distinct, there is now no employer involved, the relationship at an operational level is between a fund and a bank account with a payment system being the single interface.

Theoretically, the policyholder determines the timing and incidence of payments but it’s clear that guidance (if not advice) will be critical. It would be as irresponsible to put someone in control of their retirement fund without some initial competence training as to put someone at the wheel of a sportscar without a driving test. It is not just the drive who gets hurt in  a car crash.

But returning to Jonathan’s statement, I am struck by the emphasis on this being a digital strategy to focus on customer’s needs. Almost by definition, the target group for this new kind of payment system will be those young enough to be competent in managing matters digitally.

Whether this be the highly sophisticated modelling tools increasingly available on provider and intermediary websites or the crude but effective “sliders” advertised by the payroll lenders, most people are familiar now with financial modelling using digital tools.

The kind of questions people will be asking- “what does this do to my tax position?” , “will this impact my benefit claim?”, “when will my money run out”,  “what buffer am I building up to pay for long-term care?” can all be answered using modellers.

Some of these answers are based on knowns (tax and benefits) and some on assumptions (investment growth, inflation and longevity).

Some of the answers will involve doing nothing (keep calm and carry on) while others will involve taking definitive action- perhaps insuring longevity through an annuity, pre-purchasing rights to long-term care, increasing or decreasing risk within the investment fund.

All of this can be managed digitally though a dashboard that provides information to the individual on funding, year to date drawdown payments, headroom before the next tax-threshold and the status of hypothetical reserves (sinking funds).

None of this is beyond the capacity of insurers ,especially those who already run flex and financial education sites. Indeed the massive investments in corporate wrap may even be justified in terms of useage in managing  in-retirement spending.

What this manifestly is not about is telling people what to do. While operationally people are going to have to do a lot of the management themselves, restricting choices by setting limits is not going to work. People need to be free to make their own mistakes and insurers must not be liable for poor decisions. There is a duty of care but it is delivered in information boxes via hover buttons, it is not hard coded into a rulebook

So the key areas of expertise will be

  1. Pensioner Payroll
  2. Financial Modelling
  3. Behavioural Finance
  4. Financial Advice/Guidance.
  5. New technologies (APIs, Apps,messaging)

The areas we will be moving away from are

  1. Compulsory guarantees
  2. GAD limits
  3. Distribution allowances (commissions)
  4. Historic compliance controls

The critical success factor will be as Jonathan so ably puts it

for life insurers to focus on their customers and align their digital strategy with their customers needs



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Cash and Carry



My Mum and Dad used to buy the ice-cream and cakes for the Methodist Fete at the cash and carry in Poole. They used to go down each summer in the Methodist Minibus and they would take me and other members of the church.

The 30 Axel buckling miles back to Shaftesbury from Poole brought the Fete provisions but also huge tins of backed beans and industrial quantities of toilet rolls (not to mention the odd crate of beer – not very Methodist that).

The Cash and Carry needed a card, you needed to be a wholesaler to get the card and everyone knew that it was the Tappers who could get you cheap stuff- it became quite a thing.

Which is why I value collective pensions.

Cash and Carry is a great descriptor of how all this could work.

There are two models, one that targets payments to be paid so long as you live and one that targets payments that meet the immediate needs of the beneficiary with less of an eye on the distant future.

The one that aims to provide longevity protection  we call CDC and the  one that pays out up front we call collective drawdown. With collective drawdown there is a general acceptance that at some point in the future , the remaining income will buy an annuity which will be “enough”.

Thinking of this as “cash and carry” is quite useful. For these are collective arrangements where services- asset management, payroll and record keeping are provided in bulk. The goods-cash- are consumed by individuals but this is Lidl (minus) not Waitrose. Infact it is Booker (if you follow these things).

The “carry” is a bit of a verbal joke- we all used to leave the warehouse with pallet loads of stuff – that was the “carry”, but in financial jargon – “carry” is a term meaning to defer. While you are taking your cash to spend on the bills, you are leaving money invested for the future, in one well-managed pot.

The modelling that my actuarial colleagues are carrying out is all about “when the money runs out”. In very simple term- every extra 1% return you can get , gives you another 5 years. So a 65 year old who at a lower rate of return might be safe to 80 (at a given drawdown rate) might be safe to 85, if returns are 1% better (which gives you an idea why charges matter!)

The second thing that my colleagues are modelling is the shape of the payments. We are fascinated by how people spend in retirement. This is often referred to by economists as “consumption”. People tend to spend heavily in the early years and less as they become less active. Unfortunately, people who become too inactive start needing care and that can more than cancel the savings from reduced spending. So modelling the cash payments people might need in later life is not just important, it is extremely different as we have no idea of what our individual spending pattern will look like.

How do we bring some certainty into this uncertain world? Well we can have some experience of how assets behave, we know for instance that if you are simply looking to pay pensioners, you shouldn’t be looking for a return of more than 1% above inflation, if you have a mix of pensions to pay and cash to carry then you can expect to get some more return – say 2% above inflation (by investing in longer term strategies ) and we know that you weren’t taking cash and simply “carrying” , 3% above inflation is a reasonable assumption – over time.

We know that some assets will provide immediate certainty (cash) and little investment return and some assets will provide investment return but little immediate certainty. The trick is managing the mix, having confidence in your assumptions and having the balls to ride out the bad times in the hope that things will come right in the end. Which more or less sums up the funding philosophy of defined benefit pension schemes before the era where everything had to be guaranteed.

There are two ways you can increase the degree of certainty (other than by investing in low return assets).

The first is collective insurance – where people accept their will be winners and losers and accept that if their circumstances mean they don’t need extra help to pay care bills or to manage extreme old age, they will get less from the big pot than those who do. This is called “risk pooling” and is the basis of mutuals.

The second is a simple levy which is paid by everyone according to a formula. It might be a flat amount (a fiver a week) or it might be a percentage of your holdings in the big fat pot- (say 1%). This levy builds up a fund that you have a right to draw from in times of hardship.

Whether the payments are from pooling or from levies, the outcomes should be much the same and the difference is mainly presentational some people like to see the transparency of levies (hypothecation) and others see the mutual insurance model as more flexible and worth the loss of transparency.

But underpinning all this is the same idea as my Mum and Dad had, that if you get a great big bus and fill it with cheaply purchased and self-carried groceries, you can make your money go further.

In financial terms, we should be thinking about cash and carry facilities for those who don’t want or can’t afford the individual attention and pristine information you get from a Waitrose or M&S.

In my view, there is space for individual approaches and collective approaches and people can work out for themselves the relative values of a cheap and cheerful collective approach and a more tailored and more expensive approach (involving individual drawdown and annuity products).

The great leap forward is that we now have a way to discuss these issues in more than theoretical terms. I expect to see some of the ideas discussed in this blog, available to me in 2015. I will be 54 then and I’m already anticipating how I will be adjusting the investment of my DC pot in readiness for me putting my feet up in 2016 and taking the longest holiday of my life (and if you believe that you’ll believe anything!)

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Think first – sell later

12 groups of expenditure

The weekend saw a disorderly queue of experts predicting how the previously simple system of default investments in workplace pensions would be complicated by the increased spending choices for people in retirement.

From 2015 people will be able to spend their savings by cashing in their chips all in one go, buying an annuity or drawing down from an individual or collective scheme. Apparently this is very complicated and will require employers to engage the services of all kinds of people to review their options and create multiple defaults to cater for each type of spend.

Wouldn’t it be wonderful if the financial services, instead of demanding we all bury our heads in our hands at the thought of all this complexity, actually promoted the positive aspects of choice.

We have a year to get this right, but before we start engineering solutions, let’s work out what the problems will be. The only way we can really design solutions is by looking at the spending patterns of those in retirement, both here and in other countries and fit solutions around them.

Incomes by age

This graph shows that people do not spend in retirement as people earn before retirement. In real terms they spend less as they grow older. So while longevity may be a problem to the NHS , it is not such a financial strain to the individual (Dilmott makes this clear).

If you look closely at the way tax is structured you’ll note that there is a substantial gap between the personal allowance (including age allowance) and the guaranteed income in retirement (the single state pension). Clearly those with limited earnings in retirement will be able to draw down income into this tax free gap as tax free income or as a series of mini tax-free cash sums. Guidance for the low income is likely to be dramatically different to guidance for those who will be paying basic or higher rate tax.

Similarly those who phase their retirement may have the opportunity to defer taking income till they fall a tax bracket.

It seems absolutely clear that “premature annuitisation” will be rare as hen’s teeth, people will defer taking an annuity till the end is in sight- that may mean 97 for a fit person or a lot earlier if the health prognosis is poor.

For all these reasons, the obvious default position is to run with a “keep your choices open” investment strategy. Default lifestyles that point towards annuitisation look dead in the water, defaulting into smoothed managed funds (DGFs) look like they tick the “all things to all (wo)men” box. But calls for the death of the default are ludicrous and shout-outs for proprietary solutions at this point are counter-productive.

There may be an argument for arresting the glidepath for those actively switching from growth to protection assets at present. But we should not be frightening those in their fifties into supposing they will (after all) need to become their own CIO. We should certainly not be bouncing people out of default strategies and into home-made concoctions of funds and tactical asset allocation theories.

Now is the time to really do some thinking about what people currently do, are likely to do and would ideally want to do with their money in later years. I would hazard to guess that we will get some simple answers;

  1. feel secure that there will be money to pay bills
  2. try to keep as much from HMRC as possible
  3. avoid sleepless nights worrying about stock-markets
  4. pre-plan for catastrophies- dementia, inability to die etc

No two people are going to be alike and words like “security” and “pre-plan” will change from person to person and as people progress through their later years.

But even with all this diversity, we must still endeavour to keep things simple. We must create a single default solution for “everyman” – for the “pension plowman”.

Most of all we need to sit down and think, before we frighten people with new ideas and new responsibilites. To scare and frighten people into thinking that what they have needs change, that they need to be spending hours on their pension funds or thousands on advice is plain barmy. These are precisely the behaviours that give financial services salespeople a bad name.

We have the door open to “restoring confidence in pensions”, for heavens sake, let’s not slam it shut before people have had a chance to look around

Wealth and assets

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A few house rules…


Once you’ve blown up the building you let the dust settle ,you announce what you’ll be putting up instead and then you build.

This seems a reasonable analogy for what is happening in pension reform. The FCA are issuing invitations to the great and the good and hastily convening working groups. It feels to me that neither the DWP or the FCA (let alone tPR) were given much notice of Wednesday’s announcement, which is as it should be, sometimes Government has to be sure footed enough to reform without consultation.

So the rebuilding begins.

These are a few house rules that should underpin any discussions.

  1. The interests of the individual in retirement are paramount. This should be the “treating customer’s fairly” equivalent.
  2. Equal opportunity for all- those on low incomes , those without access to advice and those with limited financial literacy need a hand up to get to the level of the better off
  3. Whatever consumer protections apply to pensions in accumulation, should equally apply in decumulation
  4. Every effort should be made to remove conflicts of interest – non-conflicted advice or guidance means de-linking product-bias (no commissions, no vertically integrated advice)
  5. Any advice or guidance given needs to be underwritten by some form of professional indemnity insurance or Governmental equivalent.

This is not a plea for any vested interest,  I do not have a problem with advice or guidance being delivered through providers. It could be delivered in the workplace , on the internet , face to face in the pub/home/Starbucks. But I want whatever is delivered to follow these house rules and for these rules (or similar) to be touchstones, referred to in disputes, used in adviser training and most importantly engrained in the DNA of those delivering advice or guidance.

Advice or guidance?

Am I hung up on “advice or guidance”- not really. Where advice (the provision of a definitive course of action) stops and where “guidance” – (the presentation of options) takes over is a legalistic nicety. The “what would you do?” question  is always answered by some caveat along the lines of “but I’m me and you are you”. The spirit of these reforms is that people are able to make their own choices and where they are not , there needs to be an acceptable default position.

Default positions?

I am interested in what a default position might be and this is where I think much of the discussion will focus. To date we have defaulted into annuities but this doesn’t seem a likely default going forward.

If the default is to liberate pension savings into personal bank accounts then I’m concerned, this would trigger a lot of unnecessary tax and beg some questions about what happened to the money once it arrived in an individual’s account.

If the default is that the money stays in the scheme, I am happy that there is continuity between accumulation and decumulation though how an income is drawn  will be the matter of debate. Critically it should be drawn in the interests of the retiree but we have to accept that this may not be tax-optimal, investment optimal or indeed in the best interests of spouses and children.

If the default is to move people into drawdown products (whether flexible or conventional) I will want the management costs of these products commensurate with the services offered. I suspect that few drawdown products offer anything like the value for money I see in the accumulation (saving) phase.

If the default is collective, then we are looking at Collective Decumulation , which everyone who reads my blogs knows to be my favoured solution. But any CDC plan needs too to abide by the principles I’ve outlined. They will need to cater not just for the expected- the regular income calls of bills and activities of daily living, but on the big events, the catastrophies of later life (I referred to them elsewhere as vicissitudes but sadly catastrophy is better.

Catastrophy insurance

What are the catastrophies? The cash calls of kids and grand kids, the big housing repair bills and the elephant in the room, the spectre of needling long-term care as mental and physical faculties decline. The final catastrophy is super-longevity, the inability to die.

Help at hand

We know (thanks to the likes of ILC) how people spend their retirement savings and we can see that people’s behaviours vary. There is currently a lot of debt in retirement which varies from the planned (mortgages) to the opportunistic (Wonga).

We know that many people die as if in poverty though they have money in the bank, many are reluctant to draw on savings or release equity from property or even to spend their monthly benefits.

We know that others play the benefits system like a harp!

Setting out with a few house rules

In planning a new regime for decumulating wealth in later life (which is what George Osborne has initiated), we need to know what we are doing.

We are planning to rebuild a massive edifice on a site where the dust has only just settled. We do not have any time to waste, we need the new edifice in place by April 2015. But by the same standards, we need to build on solid foundations.

I look forward to discussing with all kinds of people how we go about this. We need to hear from the gerontologists like Debora Price (who understand the way old people think and behave), we need to hear from the actuaries and financial engineers who understand the mechanics of consumption, but most of all we need to understand the needs of people retiring today and tomorrow and shape policy around those needs.

In this a few house rules need to be set down now.

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“Annuities George, what took you so long?”


So Rachel Reeves has “looked at the detail” and is coming behind the Government’s proposals for annuities. This is as it should be.

  1. But there is another issue for an opposition which is every bit as important. The bold move announced in the budget came in March 2014 and will only be implemented from April 2015 (with interim measures which are semi-satisfactory).

But what of the 1.5m people who purchased annuities over the first four years of the coalition?

There are 164 blogs here on annuities , the earliest in 2009 (you can read it here). In almost every blog I call for a reform of a system that isn’t working and hasn’t been working for many years.

There are five main contributors to the problem

  1. A dysfunctional “at retirement” advisory capacity which has meant people have been purchasing the wrong stuff, at the wrong price since the advent of mass market personal pensions
  2. A complicit group of insurers who have happy to live with a system from which they profited. Too often they ignored the instruction to “treat customers fairly”.
  3. Over-regulation as a result of the implementation of Solvency II which has delivered security at the expense of return
  4. Silly tinkering with annuity underwriting resulting from the Test-Achats case that cause us to treat men and women as living the same amount of time (which on average they don’t)
  5. The artificial depression of annuity rates by Quantitative Easing that have made annuity rates a “rip-off”.

All of these five have meant that we now have a market with only three recognised players- Canada Life , Aviva and L&G offering competitive rates, all other insurers referring business to these three and a secondary market in impaired life annuities for those prepared to divulge their health and lifestyle deficiencies.

It has meant that no alternative to annuities has been built. Alliance Bernstein’s Retirement Bridge is still not ready- three years after the idea was launched and as recently as last month, the ABI were doing their best to scupper any plans for a collective alternative to annuities.

Faced with what seemed insurmountable problems with annuity reform, the Government has chosen to simply “waste” the market by abolishing compulsory annuitisation and seeing what the market can come up with as an alternative.

But this is of no comfort at all to those who have bought annuities in these years.

In 1945, our fathers and grandfathers and great grandfathers came back from the war and set about re-populating Britain, their sterling efforts between the sheets (pre-duvet) resulted in us lot and and as all this was around 65 years ago, the first (and biggest) wave of baby-boomers reached state retirement age between 2005 (women) and 2010 (men), the 1946 cohort a year later and so on.

So you can see that the last five years have seen the biggest bulge in retirees, this country has ever seen.

What have they retired into?- into the worst annuity rates this country have ever seen.

What help have they got? – a dysfunctional advisory system with what Frank Field has called a cartel of non-advisory annuity brokers who have behaved contemptibly.

What we have witnessed in the last five years has been a train crash. We don’t hear the cries of the injured or of the relatives but we will do. Those who have annuitised of late are spending their tax-free cash. But when the cash runs out and inflation kicks in, the level annuities they have purchased (often with little or no protection for spouses) will leave them cruelly short of income.

We have failed

We have failed this generation of retirees and it has been on our watch. 164 blogs failed to get the Government to take timely action.

While we can be happy for people like me who have not reached the point when I want and need my money, we need to give some thought for the 1.5m annuitants who could not defer but were impelled or compelled to annuities FAUTE DE MIEUX.

I feel my 164 blogs provide me with some personal indemnity, I did my bit and shouted loudly. It is not pleasant to be laughed at and scorned  by the insurance company thought leaders who continued to promote guaranteed annuities. It will be pleasant to laugh back at them as they shift their positions to try and salvage something from the wreckage.

And make no bones about it, this is a disaster for insurers who until Wednesday morning had thought they and the Treasury were good friends.

To me the most surprising thing about the budget announcement, was that it showed the Treasury is not in the ABI’s pocket. It showed that the public good is greater than the short-term drop in revenues arising from the fall in profits from insurers no longer milking the annuity cow.

My message to Rachel and Gregg

So if was Rachel Reeve or Gregg McClymont, I’d be spending this weekend reading this blog and some of the 164 others (just search on annuity) and I’d be asking this Government one simple question


Thanks to Phil Bray and the Adviser Lounge for this




Dail Mail Annuity

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Annuity – RIP



I guess the moment I heard the news on the scrapping of compulsory annuities will stick in the memory like the moment I heard of the death of Elvis/Lennon and Princess Di.

All morning we’d heard the helicopters hovering over Westminster, winching in George Osborne’s rabbit. Lapinologists speculated on the colour of the rabbit but nobody guessed it. I had a dream that annuities were no more and wrote a blog yesterday about what fund management would look like without annuities . I also left a cutting on my colleagues desk as I left for London from Professional Pensions Buzz survey that showed the majority of respondents wanted financial guidance at retirement (not product advice from an IFA),

I looked into the mirror this morning to check that my head hadn’t turned into a crystal ball, thankfully it hasn’t as I am on the radio in a few minutes to “rabbit” on about what all this will mean and am speaking this morning at Payroll World and this afternoon at the CIPP Capacity Crunch meeting. This evening I’m up for an award so I’m wearing a new suit and an ironed shirt (first time for everything).

Enough of this; why am I dancing on the grave of compulsory annuities. I have 3bn reasons! That’s the amount in pounds wiped off UK insurers by the market. If you want to get the story straight get odds from a book maker or prices from the stock market (closely aligned)!

The £3bn represents the asymmetry between what people had to do (buy an annuity) and what the market thinks people want to do (not buy an annuity) and it’s calculated as the lost profit to insurers as a result of them having to make do with other savings products rather than profit from compulsory annuitisation (aka seal-clubbing).

To use short words- the rip-off is over, no more ,dead ,kaput etc.

But it’s much better than that; the Chancellor (God bless his little Pauline nuts) has had the balls to put £20m of public money on the line to help pension providers and the trustees of occupational schemes explain retirement options to those stopping work in the next twelve months and extending the obligation to provide guidance beyond then.

The transitional rules between March 27th and April of next year are quite complicated so this is smart of him. It begs the question who will do the work- presumably some of the people in insurance companies who previous had to count the pound notes from annuity “sales” – ok- a bit harsh!

But there are some really interesting opportunities for people coming up and you’ll be hearing a lot from the likes of Martin Lewis and even the Pension Plowman about how you will be able to draw all your cash tax free- especially if you are about to become a low income pensioner and have a typical DC pot.

I’m looking forward to exploring the opportunity of investing in additional basic state pension using Class 3A National Insurance contributions, of buying the new Pension Bonds, of reorganising my ISAs and using my new pension saving tax allowances. All good- but as nothing to the prospect of talking to employers,trustees and my mates about how they can use their personal pensions.

Infact there are so many opportunities that I am not even going to begin now, I’m on air in 15 minutes but I’ll sign off by reminding myself of the when and where

I read about the death of annuities on a tube train travelling from Hammersmith to Liverpool St – I read it on my Mac Air tethered to my iphone, from a tweet from Jonathan Stapleton and I nearly fell off my seat.

Oh brave new world that has such pensions in it.

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All the right funds- not necessarily in the right order (a budget prescient blog)



I wrote this blog hours before the budget which abolished annuities. For some reason I decided this morning, to write about investment as if annuities didn't exist. From 2015, for new pensioners- they will no longer be the default, indeed they are unlikely to figure much in most people's thinking.
Either this was a bizarre coincidence or I am a genius. I suspect the former.

My thanks to Alan Higham for lifting some scales from my eyes (and not for the first time). At a TPNW event last week he spoke in his new guise as at retirement guru for Fidelity about funds. He made a simple but very effective point. Smoothing the investment return is important for funded pensions but not while you are building up pension savings, it’s good when you’re drawing them down.

I’ll try and explain.

When you are saving for retirement you can’t draw on those savings, the Government won’t let you – the money’s for your later life. So while the money is building up , it can be going up and down with the markets and you can let your pension provider take the strain. Plus you are feeding in money every pay period which evens things out (some months you buy expensive markets, some months cheap- it’s called pounds cost averaging and it’s another reason not to worry about rises and falls in stocks and shares.

Don’t worry about the ups and downs of the market when you’re saving

But when you are drawing your retirement income (aka pension) it works the other way round, you drawdown cash when the market’s low and you really hurt your finances, they may not recover with the next rise- you may have done irredeemable damage.

Now I suppose that Alan has got some relative up north about whom he can illustrate this better, but the image that comes to my mind is one of those TV chefs you watch when hung-over on a Saturday morning- James Martin and his gang. When they’re making sauces they always get you to stir in the ingredients gradually so the sauce is smooth and properly mixed. What you don’t want to do is lob in half a pound of butter or the whole packet of flour at one go- everything goes lumpy and you’re in food hell.

So with pension saving, steadily pouring in the money works best, wanging in a big wedge from time to time doesn’t.

Steady pouring over time makes for good sauces and good pensions

My comparison works too when it comes to consumption, the consumption phase of a pension is of course when you spend the money. Completely different conditions apply with money as they do in the kitchen. You’re not going to want to eat your hollandaise sauce out of the mixing bowl , piping hot and with those whizzy steal beaters in your face, you want the dish served up regular and predictably.

The same with money, you want predictable income in retirement with no nasty surprises. Which doesn’t mean being served a cold KFC and a can of flat coke (which is my culinary analogy for an annuity), you do want some decent nosh at the end of it all, which is why most sane (rich) people go for a drawdown of their money.

You may have noticed the Morecambe and Wise-ish, reference in the title of this blog and be wondering when I’m coming on to the Andre Previn bit. Well here I’m back to Alan’s point, modern fund theory , new technology and access to new asset classes means that the common man (or woman) can now access a properly diversified fund which provides “equity type returns without the volatility” or to return to food- night after night of reasonably priced suppers.

You need diversity for regular income and regularly good suppers!

These diversified funds work because they depend for their return on a range of differing types of investment which can be organised so that even when some markets are bad, the fund can be supported by returns for the markets that are good. This is know as the principle of uncorrelated returns and it delivers something like a “free lunch” as in “diversification is the only free lunch”.

Now I know that most people are suspicious of free lunches and trust in the maxim “if it looks too good to be true- it probably is” but there really is something in this diversification business – it really does produce smoothed growth and though you lose some of that growth because you have to pay a lot to the fund managers, it’s still a good deal – when you’re in the consumption phase.

You don’t need to pay through the nose for regular income (or suppers)

But, and this is where the Andre Previn bit finally arrives, paying for this smoothed approach when you are building up money is a waste of time #WOT! It suits fund managers for you to pay them to smooth your returns but the costs of the smoothing are substantial and you don’t need it! Which is why I don’t support the use of expensive DGFs in the savings phase of a pension plan.

If however, you can get diversification and the extra cost is insignificant and the returns are not diminished by investing in rubbish then I am happy with what you could call “diversification-lite” which is what you get from many of the workplace pension providers these days ~(think L&G, Aviva, Standard Life, NEST, NOW). But that doesn’t mean that the more volatile approach of investing purely in equities is a bad thing- (what happens in the defaults of many other workplace pensions). Where I draw the line is when the fund costs for diversification are five or six times the costs for non-diversification which is like using Chateau Petrus in your Bouef Bourgignon.

But don’t waste Chateau Petrus on the Beef Stew

These diversified growth fund (DGF) are all the right funds- but they are being used in the wrong order. Fund managers should be using them to help people draw down and avoid using annuities. If you have £100k + in your DC pot, you can probably use a DGF and enjoy regular quality meals in retirement without ending up eating gruel in the poor-house. The same should go for those who have £75k and 350k and even £25k – but that means smarter products that use economies of scale- and that’s a subject for another day.

notes 2

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Tomorrow’s heroes; these are the folk who will solve the AE Capacity crunch

old and new


We’ve been doing some planning at Pension PlayPen towers . Most of our thinking is concentrated on this graph.


We predict the capacity crunch at April 2015 which is the point when demand for auto-enrolment services and workplace pensions outstrips the supply of these services.

In order for auto-enrolment not to fall over, we are going to need to mobilise an army of volunteers- tomorrow’s heroes.

Who will lead this army? Who has the vision to see the problem and the capacity to talk to the 80,000 employers in the UK who will need to stage auto-enrolment?

On Thursday, I’ll be attending the second meeting of the CIPP Capacity Crunch task force dedicated to bringing people together to answer this question. Earlier and later in the day I will be attending the Payroll World Conference and speaking on this subject. But neither of these things matter quite as much as a note posted on our linked in group this morning.

On my rounds I’m in regular contact with accountants and last week was no exception.  At the annual conference of one of the franchise groups (attended by approx 250 accountants) I had a number of conversations about AE.

Probably a third to a half of the accountants I spoke to had no more than a basic idea of what it was and several responded with ‘what is auto enrolment? ‘

Perhaps more worrying was the fact that TPR turned up to do a presentation which was only attended by 25 or so delegates.

My real concern is that there seems to be no formal communication from TPR to accountants on this and that is storing up massive problems for the 2015/2016 stagings.


The post’s from Andy North, Publisher at

andy north

AccountingWEB have over 400,000 people on their mailing list; they are to book-keeping what Martin Lewis is to Money Saving and Andy North and his team are tomorrow’s heroes.

There are others; a few minutes after reading Andy’s post I read this from Russell Bavinton, an IFA from Leeds


It seems that quite a large number of Advisers are struggling with Network compliance. AE is now developing a significant head of steam which is leading to a disconnect between advisers wanting to promote solutions – but compliance insist this should be dealt with like regulated pension recommendations promoting products.

I think everyone at the AE coal face knows this is not what employers want – they just need someone to sort out the implementation and who will recommend a system that works, deals with communications, and also handles TPR compliance. They are not asking for a pension report! Networks really do need to review procedures on AE to avoid adding to the “Capacity Crunch”

I worry about that “rightful place” comment. No one has a right to advise on auto-enrolment – the right is earned – Russell is earning that right but discovering that a mass market solution to implementing auto-enrolled workplace pensions doesn’t fit within the boundaries of FCA compliance.

Russell turned up in my life one day when I was down at my boat – he is a hero.

So is Steve Brice of Lansdowne Place who introduced me to Andy North.

steve brice

Steve is an IFA who gets auto-enrolment. We’ll be working together lots over the next few years – he knows what hard work is.

Then there’s my new friend Jaimie Parekh who is operations director at one of Britain’s largest pension accountancy firms. Largest by schemes audited though no household name- these schemes are for the SMEs and micros who’ll be crunched.


Jaimie contacted us out of the blue and asked to help. Quite apart from her day job, she’s a brand new mum but she’s knuckling down to sort this crunch as her third job!

The capacity crunch will be discussed by big wigs in London but it’s the thousands of book-keepers, payroll operatives, IFAs and associated grunts who are going to be the heroes!

Either you’ll be in the trenches, or drinking Claret with General Melchett, I know where the heroes will be!

If you’d like to be part of our band of volunteers join the Pension Play Pen group on linked in and get in touch with me either there or at





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Why do we treat charitable pension schemes as if they were for profit?


Charities are charitable and  different - it should go without saying but it seems that many pensions people haven’t worked this out,

Why are they different?

Firstly they are not for profit and typically view their work as infinitely valuable in terms of meeting a demand- I suppose Cancer Research might consider there a world without cancer, Age UK might dream of immortality and Oxfam might aspire to eradicating hunger; but Cancer, Ageing and Famine don’t look like going away any time soon.


They think longer term

So charities think long-term and those who work for them set their eyes on distant goals. They wold like to think about pensions the same way.

Secondly they are taxed differently, because they do not make a profit, they do not think of corporation tax.

In thinking about their pension obligations, charities have a different agenda. The funding of defined benefit pension arrangements for staff who work for them is eminently sensible, these staff are dedicated to the cause they work for, tend to work for the Charity for long periods, do not see huge earnings progression and are highly dependent on the paternalism of the organisation to which they typically have devoted themselves. So many charities choose to reward staff through good quality pension schemes because it suits the culture of the charity and the needs of its staff.

But advice given to charities on how to fund for these long-term obligations is too often aimed at emphasising how “charities should come into the real world”, a world where pension liabilities sit ill on a corporate balance-sheet and the aims of trustee and sponsor alike is to get treat pensions as Japanese Knotweed.

The trouble with Japanese Knotweed, is that it is extremely expensive to get out of the ground and organisations that try to eradicate it, often find it becomes an obsession. Getting  defined pension guarantees out of an organisation can also take over the normal priorities and STOP CHARITIES BEING CHARITABLE!

Rather than be ashamed to have long-term pension liabilities, many charities are extremely proud that they do the right thing by staff who – do the right thing!

There is a second and more technical point that can be made while I am about it.

They don’t pay corporation tax

Because charities are not for profit, they do not pay corporation tax and do not need to mitigate tax by making pension contributions. The contributions they make to pension schemes, are made simply as a reserve and not part of a tax mitigation exercise.

But by contributing money into a pension scheme, the money is being committed for all time. For much of the past five years, money has been pouring into charitable pension schemes to plug deficits created by low interest rates (theoretically increasing liabilities) and low returns on assets. As the yield curve bends back, liabilities are being shown as less expensive and as growth returns to the economy, assets are increasing in value.

Many charities are finding themselves with decreasing deficits but with the same demands being made on them to lose revenue to the pension scheme.

This is where treating charities as corporate pensions is so dumb. Demanding , as many actuaries do that charities fully fund their pensions is crazy. The cash flows diverted to build up these huge reserves reduce a charity’s capacity to be charitable to no great purpose.

Charities can get smarter about pension funding

Charities should be advised to get smarter on funding, the use of contingent assets, escrow accounts and other side pocket arrangements can provide just as great short-term security as the long-term  investment of such reserves. And whereas a corporate might regard the consignment of these cash flows as beneficial as they offset tax, the CFO of the charity can take no such comfort.

Without getting out of my depth in the technicalities of escrow or contingent assets, I think this blog has made its point.

Too much pensions advice is based on treating charities as uncharitable and as much the same as for-profit corporations. Whether in view of strategy - “what’s the scheme?” or in terms of tactics “how do we run this without impairing our charitable works?”, charities must be treated differently.

Many asset management and advisory  firms have seperate divisions to market to charities, but from the conversations I am having with charities and their advisers, the marketing differentiation is not extending to product innovation!

A blatant plug

This can and should change and if for once I can plug  my company, if this is ringing bells and you have defined benefit pension liabilities within your charity, you might want to ping an email to my good friend .


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

How pensions are impacted by the bank bonus culture

time-money-235x300It’s been six weeks since I first posted about the goings on at State Street’s custodian business that had resulted in a £23m fine and the publication of some damning findings about the behaviour of the Bank’s transition management team.

The Bank Bonus Culture

If we try and peep behind the curtains, it’s clear that those negotiating the contracts with Clients A-E were driven by the usual motivators – need- (to keep job, status, mortgage payments and maintenance up) and greed for the caviar lifestyle expected of any BSD in Canary Wharf.

When you write a sales plan as a custodian, it can be a short document. There are only a limited number of pension and sovereign wealth funds who you can target for new business, so by and large, your strategy requires you to maximise income opportunities with existing clients. I’ve done this – the word “creative” doesn’t do justice to the process! The word “fleece” is operative and if there’s any wool left on your client’s back at the end of the year- woe betide you.

So the document will centre on “revenue targets” which are set around “fee tolerance” which is usually set at what you billed last year +inflation+ a percentage reflecting your shareholder’s wish that you grow the business.

Somewhere lip service needs to be paid to the idea of “treating customers fairly” but in the final analysis, your client is a revenue target.

 Who shoulders the blame?

Which is why the employees of State Street who are being fingered as the villains, those who sent the e-mails about “parking up the truck”, feel they were only following orders and why any employee of the Bank you speak to are keen to point to them as the start and end of the problem. Jo Cumbo of the FT has been passed assurances from State Street, sent to high profile clients not affected by the events the FCA mention stating that this cannot happen again, but so long as the pressures of need and greed are at work, the risk will always be there.

Which is why institutions engaging with third parties in these complex areas of finance, need really effective governance.

 Who stops this happening?

At the very highest level- the level populated by the largest occupational pension schemes and the sovereign wealth funds, governance extends beyond the narrow interests of the scheme itself- so powerful are these clients that they take on a general duty of care for all schemes. Similarly the largest fund managers employ governance experts who ensure that the companies they invest in are properly managed- the impact of their work is felt by all shareholders.

This is one of the reasons we give such credence to what the NAPF says, it speaks for these large schemes but it also exercises an umbrella role for everyone with skin in the game.

The insurance companies have a similar role, which is why it is important that the new independent governance committees due to be launched later this year, succeed. In fact we are at an inflection point for pension’s governance as DC pensions step up to the plate. In the next few months we will also see a new governance code for mastertrusts published by the DWP.

How does this work for workplace pensions?

Which brings me back to State Street, who are the primary fund managers for NEST and for Scottish Widows. How NEST and Scottish Widows react to the fraud at State Street is most important.

  1. It demonstrates the tolerance within institutions for this kind of behaviour
  2. It sends a signal to State Street and all institutional players about the consequences of poor behaviour
  3. It sends a signal to Government as to how far the City can be self-regulated (and to what extent governance can be outsourced to the private sector)
  4. It sends a signal to members of NEST, to policyholders of Scottish Widows and to the wider constituency of those in workplace pensions, on what will be tolerated.

And how have they fared with State Street?

On February 2nd I wrote to the CIO of NEST and the CEO of Scottish Widows asking that they make a public statement about State Street. I did not call for State Street to be sacked but I wanted both institutions to publicly condemn the Banks’ behaviour. I have since spoken to the Chairman of NEST who has told me that it is not in the public interest, that this matter is given external publicity.

In my view this sends all the wrong signals. If the justification for NEST’s approach is that members may be alarmed, that is a good consequence. If members engage in the management of their pensions and ask some serious questions about whether they want their money run by an organisation that was fined for appropriating client monies- that is good. If they simply note that those guarding their money are “on the case” – that is good. If they ask the question- how was all this going on as late as 2011 when NEST were setting up the Investment Management Agreement with NEST- that is also good.

NEST and Scottish Widows may argue that exposure of State Street’s behaviour may cause some bother but it will be nothing compared with the bother that they would bring upon themselves if they keep quiet about this. And every day that clicks by without action from NEST and Scottish Widows, makes it more likely that they will get pilloried in the national press with much worse consequence.

What more can be done?

So I call upon NEST and Scottish Widows and any other fiduciaries using State Street to make it absolutely clear where they stand on State Street, what measures they have taken to protect their policyholders/members should this happen to them and the reassurance they have received from State Street that the underlying risks are mitigated.

State Street need something better  than the “need and greed” culture that fostered these frauds and Mastertrusts and IGCs need something better than the toothless response to these excesses.

Posted in Bankers, State Street, target date funds | Tagged , , , , , , , , , , , , , , , , , | 1 Comment

Better hid.

Better hidThe trustees of NEST have been faced with a dilemma and it’s clear they have considered it and taken decisive inaction.

This blog sets out to explain  and justify why the Trustees of our National Employers Savings Trust have chosen to continue with State Street as their lead investment manager and have made no public statement about State Street or its relationship to NEST.

State Street, the American investment bank that provides custodial services to the Royal Mail and Sainsburys and investment funds to Scottish Widows and NEST, has recently been fined £23m for theft by the Financial Conduct Authority. See here

If you are found to be stealing money as an FCA registered individual then not only are you going to face the only custodial role you will be facing is as a guest of HM prisons. Your chances of working in the UK financial services industry is limited by your criminal record. But if you are an investment bank, it is different. You pay some money and carry on.

There may be one or two readers who raise an eyebrow at this. Aren’t fiduciary duties absolute? Are their degrees of culpability in theft and is stealing from a pension fund a victimless crime? If $22m is stolen out of retirement and sovereign wealth funds set up (inter alia) to pay pensions to Sainsbury’s staff and Royal Mail postmen, might we not infer that the deficit arising would need to be paid for by customers through more expensive postage costs, and costlier aubergines?

But there are other considerations at work.

We should not forget that for NEST, the number one priority is not to rock the boat. They have set up an investment strategy for youngsters entering the pension system that provides them with a low growth fund for the first few years in the hope that youngsters will not opt out of saving like scalded frogs jumping out of a boiling pot of water. Were these same savers to discover (though NEST publicly censuring State Street) that their investment managers had been caught with the fingers in the till, frogs might jump. Turn the heat up on one – turn the heat up on all. Rock the State Street boat and your boat rolls with it.

And we should remember that it was only in last year’s accounts that NEST had to admit to being a victim to bank fraud itself. So for it to be associated with bank fraud again would not look well to its members, let along the tax payer and more specifically the DWP – who bankrolls NEST to the tune of c£400m

Besides which, State Street can argue that what goes on in its banking division has nothing to do with its asset management division, that all this happened a long time ago (well 2011) and though NEST and State Street were setting up their Investment Management Agreement in 2011, not much money was under State Street’s management (until more recently).

And we shouldn’t forget that if NEST had to blow the whistle on State Street then so would Scottish Widows, which would be uncomfortable for Lloyds Banking Group which is trying to release itself from the shackles of state ownership (and deliver some needed funds back to the Treasury).

And then of course there is the reputational damage to the trustees and the governance process of NEST. It would not be good for their reputation for it to be revealed that this fraud happened on their watch, that the fraud was not exposed by them, nor indeed by the FCA but by Inalytics, an independent third party. Frankly this would not say much for the governance process in play at many UK occupational Schemes.

And finally, we should not forget the great prestige brought to Britain by having State Street in their wonderful tower in Canary Wharf and how much it means to the City to have them, JP Morgan , Bank of New York and Citibank looking after our money. Infact the FCA can enjoy the experience of dining and drinking with the very people they are fining as their offices are virtually next door to State Street’s. It is small wonder that London has become the place for global banks to do business, nowhere is financial crime better accommodated.

Considering all the evidence, it is clear to the trustees of NEST that it is in nobody’s interest that State Street be censured, let alone be fired, from their position as the lead investment manager of NEST funds.

The burdens of trusteeship are many and we should be grateful that faced with this difficult decision, they have decided to sweep it under the carpet.

Sunlight might be the best disinfectant but in the murky world of UK financial services, a little disinfectant might do more harm than good.

So if you’ve got this far, I’d ask you to forget what you have just read, it’s not good for you, for Nest, for the DWP and Treasury and most of all it’s not to be repeated.

Mum’s the word eh!

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“What’s it like to be retired?”

financial wellness

It could be the trending chant at any event that Alex Ferguson turns up to – a taunt to a man who having lost control has seen slump into mundanity in a few short months.

Financial wellbeing in later life

But football is not the subject of this blog- retirement is and in particular thoughts on Financial wellbeing in later life. This is the title of a quite excellent piece of research launched jointly by the University of Bristol , SDAI and the International Longevity Centre and downloadable from the link.

I attended yesterday’s launch which had as its theme (and twitter hashtag) “balancing the books”. At half time, after the research had been presented and before the bun fight on equity release schemes had begun, I had a conversation with one of the academics about why I was there.

Why was I there?

It seemed totally obvious to me, I advise people on planning for retirement, my job is about getting people to prepare for “financial wellbeing in later life”. The report sets out to provide data from over 20,000 people on

  1. What do older people spend their money on?
  2. What are the main patterns of spending among older customers?
  3. What mortgage borrowing’s going on in older households?
  4. What other types of debt are older households taking on?
  5. What is the composition of older people’s wealth?
  6. What’s the connection between having money and being healthy for older people?
  7. Are older people financially satisfied and does this make them happy?
  8. What makes for quality of life in later life?
  9. How is quality of life affected by having or not having money?
  10. What can be done to work out causal (chicken and egg) issues?

Incomes by age

Why can’t every retirement debate be like this?

Frankly, if the NAPF made this their agenda I would be going to the conference – even at their extreme conferences. These are questions of real importance about which I would pay big money to be better informed. My livelihood should depend on being able to understand these questions and provide people preparing for retirement with not the questions, but the answers!

Yet the room was full of academics and virtually void of financial practitioners!

Some of the insights I gained yesterday are so valuable that, were I not the sharing type, I would keep to myself and use for my and my firm’s commercial advantage.


Chicken or egg?

And yet, even within the audience there was dis-satisfaction. There was dis-satisfaction over question ten, someone wanted to know whether older people are more likely to get ill because they’re skint or whether older people become skint because they’re ill. It’s a good question but one for another day. Common sense says it’s a bit of both and I’m sure that’s what the research would say. But my point is that even considering the question got me thinking how I could get younger people to think about the importance of keeping healthy by being wealthy and vice versa- that’s a strap that any IFA could use!

Is this what it’s like or just a passing trend?

Others were concerned about the paucity of “longitudinal” research, that’s the research into how people change in retirement – so if you follow me at 52 and 57 and 62 and 67 (and many like me), you can find out whether the snapshot of 2014, 2019 etc represents circumstances particular to the time or whether what I’m going through as a 67 year old is the same as all 67 year olds for all time. I agree- this kind of research is even more brilliant than the snapshot stuff that was mostly served up in the report.

But let’s not look a gift-horse in the mouth! Here –served up for free- is a source book for anyone interested in Financial Education whether they be IFA, or EBC or Actuarial Consultant or one of the third sector advisers that Laurence Churchill suggests we’ll be relying on going forward (MAS,TPAS,CaB take a bow – on you we dump).

Wealth and assets

So what’s to be done?

I have three takeaways from this conference

  1. The most brilliant report that I’m going to read and read and read because it teaches me how to do my job
  2. The realisation that most of my competitors are missing a trick (hurrah!)
  3. That sadly, the financial services industry is simply not listening to its customers.

Of these, from a macro perspective, the third is the most important. The findings of this report, based on a magnificent data set and superb work by world-leading social scientists, demographers and gerontologists, should be on every bank and insurance company’s agenda today, this year and going forward. Until we shape policy and design products around the needs of elderly people and not around what will sell, politicians and financial services companies will bark up the wrong trees.

I do not know what it will be like for me in retirement, but reading this paper, I can have a much better informed view. My clients, the employers who fund the financial education courses we run and the staff who attend those courses are not looking for me to pander to what they don’t know- they are looking for what I do know- and they are paying for informed comment.

I would urge anyone who is in the business of preparing themselves and others for later life, to spend time with this document and to spend more time thinking “what’s it like to be retired”.

12 groups of expenditure

This post was first published in (top thinking)


Posted in annuity, auto-enrolment, Bankers, Facebook, Financial Education, First Actuarial, pension playpen, pensions, Popcorn Pensions, Public sector pensions, steve webb | Tagged , , , , , , , , , , , , , , , , , , , , , , , , | Leave a comment

Pensions are stopping us building houses and housing is stopping us buying pensions!

sausageThis was the 52nd pension play pen lunch and one of the best. Attended by a knowledgeable gang of social housing officers, pension consultants and a fair few bankers, the lunch group set out to answer the question “are pensions stopping houses getting built?”

On the face of it- Pensions were found guilty as charged

  1. Funding defined benefit pensions, in particular the public pensions that social housing engage with under Fair Deal is preventing Social Housing Groups buying land and building houses.
  2. Requirements to auto- enrol protected people into expensive defined benefit schemes is increasing cash-flow strain and long-term liabilities
  3. The DWP block on the statutory override for former public sector pensions is making the abolition of protected rights an NI nightmare in 2016

With pensions drawing on the reserves of social housing associations, it is a wonder that Eddy Truell and Boris Johnson are allowing the LPFA to treat Social Housing covenants as junk. News that the LPFA are demanding that housing groups fund on a discontinuance basis were met with consternation by those in the room unfamiliar with the issue. “Social Housing groups are not going bust so why should they be forced to fund as if each tomorrow was their last”, was the comment of one officer.

News from legal Guru Robert O’Donovan that Social Housing organisations were to be hit by the double whammy of contractual enrolment of Protected staff into Local Government Schemes and  the prospect of higher NI with no mitigation of pension liabilities came as a further blow. The sound of choking on beer and sandwiches deafened the room.

But mitigation was at hand

Michael Harrowven, Chair of Saffron  Housing Association explained how they’d raise £125m from the market at 1.25% over the gilt rate. He looked smug as well he might. At the time (a couple of years back).  Moodys had given his organisation a double A debt rating. Today this rating has been downgraded but he has his money for a further 28 years.

Michael had explained that to get the finance he’d need to prove to the market he had effective management, control of various risks surrounding the housing stock and that political risk was minimal. He had succeeded but Jan Taranczuk, Vice Chair at the Chartered Institute of Housing and Kevin McCarthy, Director at Just Housing pointed out that the landscape had changed and not for the better. With the odd exception (the Pension Fund of Greater Manchester being cited), the expected investment from Pension Funds predicted by consultancies such as Redington had not yet materialised.

Jan and Kevin pointed out that what had seemed a clean regulatory environment had become sullied. The latest SOPR imposed on Housing Associations now required them to account for their assets not at their value but at the discounted cost after state subsidy. This reduced the Housing Association’s capacity to borrow and the attraction of their debt to Pension Funds. As with the LPFA, the unintended consequence of a Regulatory tightening was to reduce the scope of the Housing Associations to build houses.

Under inquisition from Ian Bright, senior economist at ING it became clear that much of the advantage enjoyed by Council Housing (free land) was not enjoyed by Housing Associations .  And while there had been a transfer of control of the housing stock from central to local authority, the funds from council house sales were being kept on local authority balance sheets and not made available to housing associations for investment in new stock.

The fiduciary dilemma

With 68% of social housing revenues coming from the Benefits budget, these revenues were now being considered “at risk” from changes arising from Universal Credit and from overall caps on family benefit budgets (£28k). With the  threats to alternative funding sources mentioned above, trustees of pension schemes were understandably confused as to whether they would be investing commercially or for the public good. Camilla de Ste Croix of Share Action pointed out that most trustees were being instructed to invest on a commercial basis and while Share Action were lobbying to improve the SRI element in the decision, she could understand trustees looking to invest in alternative ways.

Charles Tatham, Chair of Barker Tatham, put it succinctly, he could not see the risk/reward of pension funds investing in social housing as sufficient for him to advise for it against other infrastructure investments.

A sorry picture

It was left to the bankers Geraldine Davies and Arjan Verbeek to sum up the financial case for pension funds to continue to consider Social Housing. They pointed to the continued security of inflation linked income streams and the match between pension scheme liabilities and the long-term nature of social housing debt. They explained that banks no longer wished to lend in this long-term way and that pension funds and social housing really should be friends.

But as we filed out of the Counting House on a wet March lunchtime, I sensed that housing and pensions really don’t get along.

The costs of renting – especially in the South East are now so high that they are the single biggest obstacle to saving. Ironically it is those who have most by way of pension rights who have the cheapest housing costs. It is those with cheap mortgages that can most afford further pension schemes and are most likely to have the security of well-funded defined benefit pension schemes.

To bring down the costs of renting, we need to build 40,000 houses in London (BoJo’s estimate) and up to 200,000 houses around the country. But these houses are not going to be built by social housing organisations without bank finance or long-term investment.

A ray of light?

If a ray of light can be determined at the end of the tunnel – it may be from pressure on annuities to deliver more. Here is the wonderful Adrian Boulding on Twitter;

Now we are using annuity customers’ money to fund accommodation for key NHS workers in London …

And lest I be accused of offering provider bias- here is John Lawson’s take

@JohnRalfe1 @JosephineCumbo Annuities now invest in comm property, infrastructure and loans, so ERP gap not as large as assumed

But in the final analysis – will pensions and housing ever be true bed-fellows? I suspect we are divided by liquidity!

“You can’t buy a sausage with a brick”

This article first appeared at

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The DWP charges wagon is firmly back on track

charges wagon



The last few days has seen a number of surprise developments culminating in a proposed amendment to the Pensions Act 1993. Poor fare for a thought piece? Read on!

The original proposal for a wording proposed by Lords Lawson and Freud was adopted in an abridged format by the DWP with a key twist. Whereas the Lords proposed disclosure to Workers, the DWP referred to the definition of “person” in the 1993 Act.

Herein lies the nub of the issue. What should be disclosed and who should it be disclosed to? The agenda of retail regulators since A Day back in 1987 is to disclose to the policyholder, the Pensions Act has always concerned itself with trustees and disclosures have assumed some knowledge and understanding.

For the disclosure of fund costs to have impact, the information itself must be relevant and those in receipt of the information must have the capacity to deal with it. The DWP have subtly redefined the recipient and in so doing, made the nature of disclosure, entirely different.

What then is the purpose of this disclosure? Well, for it to work, it needs to define not just what has happened, but what should have happened. There need to be benchmarks against which these fund costs are measured and where those benchmarks are set will be an extremely contentious issue.

For the benchmarks to be meaningful they will need to measure against a wide data set using sophisticated techniques. The skillset to devise these benchmarks and to implement the reporting against them is going to be challenging. That the DWP are prepared to take on this challenge is encouraging.

Even more ambitious is the plan to disclose this information into a market of some 20m workers and 1.2m employers. It is understandable for the DWP to be coy about the status of the “person” to whom disclosure should be made. By its own admission, many of the governance structures of its 40,000 registered occupational schemes are not fit for current purpose, let alone to take on the analysis of this level of data, in practice, only the largest trusts and mastertrusts are likely to have existing competence to make sense of and act upon this kind of reporting.

It is doubtful whether such an ambitious set of disclosures would have been countenanced for contact-based plans without the prospect of Independent Governance Committees. The establishment of these IGCs by the middle of this year is now made all the more essential. The ABI should recognise that though the IGCs will need to be properly resourced to deal with these disclosures, they will not be “self-harming”. The insurance companies who run contract based plans do not directly manage the funds.

The greatest challenge from these new disclosures is to the managers of the funds sitting on the insurance company platforms. It is not the ABI who have most to lose but the IMA. But paradoxically, the fund managers have, till now, born none of the risks of auto-enrolment- they have simply awaited the arrival of increasing cash flows. The DWP’s amendments are likely to change that and put the governance focus firmly on their activities. This can only be to the long-term benefit of workplace pensions.

This post first appeared in

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Why I want to be Pensions Personality of the Year 2014.

value of somethingI’ve been long-listed for the Pension Personality of the Year award by Professional Pensions. This is the fifth year it’s happened and though I’ve made the Final a couple of times, I’ve never won the gong. Nobody I know actively canvasses for the award but I’m going to do so and this blog is all about why I want to win!

Pension Personality – definition of an oxymoron

Put aside the easy gags , pensions like any other financial services sector, need people who can speak up for them and yes there are pension personalities. We have several who speak outside the walled garden of “pensions” like  Tom McPhail, Ros Altmann, Alan Higham, Malcolm McLean, Alan Pickering and of course Gregg McClymont and Steve Webb.

These are all people who have earned their right to speak for pensions by dint of their understanding not just of the issues that affect people, but the buttons that connect or “engage” with a wider public.

There are a number of people who we might consider industry spokespeople who have influence within pensions but do not seem to connect in the same way outside, they include Joanne Segars, Roger Mattingly and Paul Couchman whose responsibilities as leaders of trade groups make them visible but constrain them from imposing their personality.

Finally, there are those noisy people like me who hold no office and have no vox pop, but manage to get heard. The bulk of those on the Professional Pension long list fall into this group.

Pensions Personality – general cause for embarrassment

But the weird thing is that if you tell people you are excited about being nominated – even other nominees – they look at you like you are a sad git. I don’t think I’m a sad git for being nominated – I’m really really chuffed!

The graph at the top shows what happens with this nomination - people desperately want one (but won’t say so), once they’ve got one they play it down like it was some kind of disease and as soon as they lose the nomination by not being finalised or winning, they are full of regret. I promise you I will still be chuffed if I don’t get to the final and win- but I want to win!

 Pensions Personality – how to win!

The process for winning is in three stages, you get yourself nominated (where we are now), you get yourself shortlisted (by marshalling public votes – what I’m up to now) and you win on the night as a result of being loved by a panel of judges.

As with any personality award, the characteristics that are judged are a matter for the judges and are generally not shared; since it is impossible to know what you are being judged on, it is pretty well impossible to lobby the judges.

Quantitative assessments of influence are of course now much easier to obtain – every candidate could be rated by the numbers of twitter followers, or by their Klout score or by an analysis of their google ratings. Many automated lists float around which purport to measure influence- all are only as good as the big data questions input into the search and the quality of the database interrogated.

Pensions Personality -more than a Klout score

If we measured personality by Klout score then it would be won by an algorithm as faceless as the inventor of Bitcoins.

We do not choose personalities this way, instead we look at influence in terms of good and bad. Without doubt the most influential political personality in Britain is Boris Johnson, I say so because the difference between the influence of his office (London Mayor) and that of his personality are so wide. It is perhaps unfair on some office holders to say their influence is only a matter of their office since achieving high office requires personality, but it is fair to say that we judge personality by the extent an individual has gone beyond the profile of his office. On this ground Tom McPhail has gone way beyond what might be expected of a Hargreaves Lansdowne PR person and Steve Webb has exceeded the bounds of Pension Minister- both because of personality.

So you look at what Richard Butcher has done at Pitmans, Steve Delo at Pan or Emma Watkins at LCP and MetLife and you see the power of personality raising the profile of the organisations within the industry to the extent that they are their company’s brands (or certainly the brand of the division they represent).

Pensions personality – more than corporate PR

But I think to be a brand ambassador for pensions, you need to be more than an effective ambassador for your company’s brand and it is to the extent that we are ambitious to promote pensions- not our paymasters- that personality is most effective. Boris speaks for London on a global stage, he is both London today and what London might aspire to be. You would say that Boris was an enthusiast for London and I guess I want to be an enthusiast for pensions

 Pensions Personality – a vision for pensions

Which leads me to my conclusion and an answer to the question “why am I proud to be a pensions personality?”.  My conclusion is that to project forward, to aspire, “pensions” needs to be aspirational. We need to demonstrate we are worth the money we are paid and that we don’t want to do enough to justify our keep- we want to do more.

The title Pension Personality has never sat well on the shoulders of those who wear it. Ronnie Bowie didn’t even bother to turn up to win his award and Ray Martin who won last year emigrated to Switzerland soon after!

It is as if personality is frowned upon (certainly it is in fund managers who decry the “star culture” as a business risk). But by playing personality down, pensions loses the capacity to reach beyond well …pensions!

Pensions Personality - till I die!

Everything I say about DA,DC,DB and unfunded pensions comes from the heart- it comes from what I think and what I’ve experienced from 30 years in the game. I may not always be right, but because I speak from the heart , I am consistent – you know where I’ll stand.

My hope is that I will win Pension Personality of the Year in 2014 and that this will help me launch myself to 1m employers who don’t know about pensions. If I win I will use the title to promote myself to these employers and I will use the Pension PlayPen as a means to make pensions accessible.

Our little company does not even have one full time employee and yet we were nominated for the Best Auto-enrolment Implementation Award at the Pensions Age awards this week. We didn’t win, but Alun Cochrane mentioned us being the first organisation that brought a smile to his lips.

Being led by Britain’s Pension Personality of the Year will allow Pension PlayPen to walk that little taller- talk that little louder and do a little more good.

Winning doesn’t mean I’m worthier or nicer or even more of a personality than others on the list (I wouldn’t claim to be #1 on any of those criteria). But winning will mean that I have an opportunity to do what I know I’m good at, which is represent pensions through the conventional media , social media and onto the phones and computers of the 1m people who we need to connect with if we are to complete the great venture of auto-enrolment.

 How to help me become Pensions Personality of the Year

To vote for me as Pension Personality, simply send an email to by Friday 21 March. To ensure your vote is counted, please type “Personality: [Candidate Name]” in the subject line of your email. You do not need to give any reasons for your choice in this email.

To vote for Henry Tapper, type “Personality: Henry Tapper” in the subject line.

Please do it today!

value of something

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Why clever people don’t do jargon

eton wall game


I think the best actuaries are hard to spot, you wouldn’t know they were actuaries. The same goes for the best investment managers. Last night I had dinner with Eve Finn and a table full of Legal & General Investment Management’s award winning LDI and multi-assets specialists.

Eve is an actuary, I had to look her up to find out.

I looked Eve up on Linkedin- her title is polysyllabic and incomprehensible, I’d asked her what she did- “I look after the LDI team” she replied. Granted “LDI” is jargon but she knew that I knew what it meant and we both knew the shorthand so it was ok. If she’d met me on a bus she might have said “I try to stop pension schemes running out of money” which is what LDI does.

While we spoke, I had been thinking of an interchange I’d had some years ago when someone (who I like and respect) had been talking to me about various PV01s. It took me about 10 minutes to ask him “what is PV01”. He looked at me like I had just opened his eyes on the Road to Damascus.

Earnestly he entreated me to ask the question on his website so I could be the idiot abroad and the savants he knew could assail me with definitions and induct me into the mysteries of capital markets. So I did, and they did and for a time I went around telling tales of PV01 until one of my actuarial colleagues (called Hilary) told me to stop being a git and behave myself.

I told Eve this story and she laughed a little childish laugh, like you do when you have an IQ of 200 and empathy to boot.

I suppose that if you are the very best at your trade, a Federer or a Springsteen or an Eve Finn, you don’t have to prove it- you just want to help other people up onto the wall because you know that the wall itself is a good place to watch. Hence the photo!

There have been loads of comments on twitter and my linked in group this week about the use of jargon and clearly the interest is not just semantic. People are interested in what jargon does – why it destroys and how it can be avoided.

But semantics is the symptom not the cause. The cause of the problem is the need some people have to build a wall garden around their knowledge, to put a little garden gate in the wall and to give the key to selected folk who are now part of the knowledge Cabal. These little Cabals spring up everywhere, they are the means by which those not sure of their ground create some sense of self-worth, albeit limited self-worth since their terms of reference are limited to the clique or cabal they create.

Which is why Hilary was right to call me a git and why I admire this little Irish Lady with beautiful shoes, impeccable manners and a brain that seems to run at a different download speed to mine.

I love being around these great people because they are generous with their gifts and make others feel good as they are hoisted onto the wall. I don’t despise jargon nor its creators , the anger and frustration came before I understood that the jargon is the symptom not the cause. But I do despise the pettiness of those who have the talent but not the willingness to share.

The gentleman who told me about PV01 has now moved on and grown into a new maturity. He is a good guy who doesn’t need these wall gardens- if he’s reading this, I hope he’ll laugh because he knows he and I share common aspirations (and he’ll appreciate the reference to Federer).

So the next time you feel intimidated by jargon, rise above it- jargon demonstrates the weakness of the person using it, their failure to talk with you using language you understand.

And if you read yourself and think- that doesn’t sound like me, it’s because you are hiding behind words that are not yours- you’re hiding in that walled garden which you created in your “agile” , “fluid” and “pivoting” “space”!

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Fire extinguishers and auto-enrolment

fire exstinguisher

Fire Extinguishers?

“You wouldn’t expect your employees to pay to use one of your fire extinguishers so why should they pay the costs of auto-enrolment”. This from a pension minister who has created a new lexicon for pensions involving self-powered pots, baked beans and traded annuities.

But this analogy has legs (unlike the fanciful pots).

A year ago I wrote about (and was threatened with legal action) for writing about one of our largest retail chains which justified the payment of commissions out of its employee’s pension pots to fund for auto-enrolment costs. These costs were disguised by the use of active member discounts, but they pretty well doubled the stated member charge. You can read the blog here, Give a straight red to active member discounts

Yesterday Steve Webb told an audience of over 600 payroll and HR professionals at the Ceridian Client Conference #CCC14 that. As a result of the quality standards he was currently putting in places, companies that passed the burden of auto-enrolment onto staff, would have to revisit the policy and reverse it.

Steve’s plans may have been put back a year (he says he backed down out of pressure from employers not insurers), but the plans are still there. That employers have got another 12 months to put things right does not mean that they should keep things wrong and I would urge the offending department store and the insurance company paying the commission, not to wait. Give a straight red to bad practice and practice what you tweet.

Buy now at pre-crunch prices?

The position of insurance companies is hardening. Yesterday I spoke with Scottish Widows who will be charging customers dealing directly with their on-boarding teams a minimum of £1,500 to implement a new Scottish Widows pension. Not necessarily bad value and a fee that is open and explicit. Legal and General charge £1000 to use a similar service and it is likely that explicit fees to employers to get workplace pensions embedded into a company will become commonplace. If you employ the services of a third party HR project manager, IFA or other auto-enrolment expert you could be paying more or less but make sure you don’t end up paying twice (Scottish Widows give you the choice but say they won’t charge you if you use a regulated IFA).

It is possible to avoid these fees by using some providers not currently charging; in view of the trend, it may be sensible to on board your pension sooner rather than later- I don’t see prices going down- indeed as the capacity crunch crunches, I can only see auto-enrolment implementation costs rising. There are currently no implementation costs from the leading mastertrusts- NEST, NOW and People’s Pension.

It’s official – we’re unreal!

Unbeknownst to me, I am unreal and so are my mates! This from WWW.ebb who kicked off at #ccc14 telling his audience how nice it was to speak to real people and not the usual pension people who came and sneered at him. Well Steve, I was there and so were some other pension insurgents and you were really laying it on with a trowel. I will continue to really laugh at your pot follows member policy until you get real about the transition costs between funds of your current plans! But that doesn’t mean that I don’t think you are doing a good job in other places (witness your work on internal transaction costs within funds.

You’d better shop around

As if reading a script prepared by the Founder and Editor of the Pension PlayPen, Mr Webb (note reverence here) suggested that anyone wanting to buy a workplace pension still had plenty of choices and would be well advised to shop around. He stopped short of pointing out that this is what employers can do for free at but this was towards the end of his speech and he may of been getting tired

Webbometre reading

Our Pension Minister seems to be back on form, he has just about got out of the hole he dug with his full frontal assault on charges and is now back biffing. He was at his best yesterday singing his paraise for simplifying auto-enrolment; he got sage nods from many in the audience that included the CIPP and the Payroll World delegation who we took down to DWP Towers late in 2012 to sort out alignment issues. Yesterday we got the roll-call of easements restated and the promise of more – “my door is open to change”. Be careful what you wish for Steve, there’s a fresh-faced Scottish historian waiting in the hall.

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Why the Government is so worked up about DC pension charges.

floodsThe DWP are expected to announce today how they intend to out the hidden costs in personal pensions that can reduce personal pension income by up to 30%

The table below shows how we get income in retirement. There are two standout numbers, the importance of state pensions and benefits that makes for 43% of income we receive and the tiny proportion (4%) that comes from personal pensions. Based on outcomes, the insurance industry is generating a tiny proportion of our national income in retirement and it is national insurance and not salary that is the greatest contributor to retirement security.

 incomes in retirement


  If you want to read the full report from the DWP (which has been out some time but seldom remarked up you can find it here


So what’s the big deal?

One of the impacts of the new workplace pensions into which 11.5m new savers will be enrolled, will be to reverse the percentages of income derived from occupational (DB) pensions and increase the amounts arising from personal (DC) pensions. Now I know this is a crude summary and a lot of occupational pensions are DC (including the new mastertrusts like NEST and NOW), but the big issue is in this shift.

Until now, in policy terms, the efficiency of personal pensions doesn’t matter. If an efficient personal pension system bumped up its importance from 4% to 5%, so what? In macro-economic terms that doesn’t amount to a row of beans. But if you were to increase the 26% arising from occupational schemes to 33% as a result of greater efficiencies – you’d be talking!

There is not much that can be done to make DB schemes more efficient but there is a lot that can be done to improve the efficiency of DC. Which is why anything that the DWP comes up with to out hidden charges (and thereby reduced them) is good news. It’s why (and this is a lot more important), moving to the DB method of paying pensions (rather than individual annuitisation) is so critical.

Millions of people have suffered impaired retirement incomes as a result of high charges and poor decumulation on personal pensions and millions more are still to do so (unless the ABI gets insurers to create a charges amnesty on its back bock- thinks unlikely!)

But for the future generations of DC savers, a system of personal pension saving which is more open, more trusted and –yes – more efficient, is not only a moral imperative, it’s a political imperative too.


And why this matters to you!


While I’m in a statistical frame of mind, here are relatively new statistics from the Office of National statistics

They reveal that that people are working longer than they used to. The average age at which people leave the labour market – a proxy for average age of retirement – rose from 63.8 years to 64.6 years for men and from 61.2 years to 62.3 years for women between 2004 and 2010.

This average summarises information about the ages at which people stop working, which differ for different people. For men, the peak ages for leaving the labour market are 64 to 66 years. For women, the peak ages are 59 to 62 years. Thus, retirement peaks around State Pension Age (SPA) for both sexes; but many people retire before SPA, and others work beyond SPA.

You want to retire when it suits you- you make sure your pension schemes are working for you, and not for the financial services industry!


Here’s what the House got!

Written Ministerial Statement

Monday 24 February 2014



The Minister for Pensions (Steve Webb MP):

I am pleased to announce the

Government will be introducing new measures to require transparency for transaction

charges in pension schemes. Later today we intend to table an amendment to the

Pensions Bill 2013 to introduce this latest step in the Government’s wider plans to

ensure consumers receive value for money from their pension savings.

Transparency of costs and charges is fundamental for good scheme governance and to

enabling comparison between schemes. Our amendment, which is intended for

debate at the Report Stage of the Pensions Bill 2013 in the House of Lords this

Wednesday, will place a duty on the Secretary of State to make regulations requiring

greater transparency around the transaction costs incurred by work-based defined

contribution schemes.

Requiring increased transparency is the latest step in the wider Government

programme to see fair charges for people who are automatically enrolled into

workplace pensions. Last year, we consulted on whether to cap charges in the default

funds of schemes used for automatic enrolment, and the Government remains

committed to seeing this policy through during the life of this Parliament.

Accordingly, our response to the consultation on charges, and further proposals on

quality and transparency in workplace pension schemes, will be published soon.

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A capacity crunch?

scorecardThe prospect of debating whether we get a capacity crunch in Auto-enrolment drew a capacity-crunching crowd to Wragge & Co.’s offices yesterday afternoon. Under the convenance of heroically quiffed Andy Agethangelou, some 50 of us attended a symposium on the current state of play for auto-enrolment. The event was sponsored by the CIPP and the audience was a mix of payroll and pension providers, consultants and representatives of trade bodies.

Neil Esslemont spoke for the Pension Regulator; the following bullets are the tweets I put out during his speech, my expanded thoughts are in italics below; I am not sure this is a fair way to report a speech, but it is an accurate representation of “what I heard”!

  • tPR small and micro business owners are telling tPR that they need help but aren’t going to abdicate responsibility for AE decisions
    • this resonates, we are not finding many employers who want to wash their hands on workplace pensions. Are the micro-employers talking about auto-enrolment at this stage representative? On reflection I suspect the Pension Regulator and DWP’s researchers are reaching the parts the pension industry doesn’t reach so this is genuinely encouraging
  • tPR anticipating publishing breaches on AE but not yet- “we’re all being very good” #AE #Capacitycrunch
    • I spoke with Neil afterwards and got the impression that tPR really haven’t encountered any deliberate evasion of employer duties. There may be civil disobedience in the pipeline but I don’t see the Pension Regulator sharpening his knife at the moment.
  • “European Social Fund to the rescue of AE in 2015?” asks Dave Wheeler @CIPP
    • I’d be interested in hearing more about the CIPP’s plans to provide SMEs with assistance in staging. This is a new one on me, but that doesn’t mean it may not have legs!
  • Pathfinder staging month for micro employers a deliberate policy from tPR. does anyone know which month it is? #AE #capacitycrunch
    • Apparently there will be a month where some  micro employers will be staged out of sequence to test the system- did they volunteer or did they just get unlucky- as my tweet asks- does anyone know which month this is?
  • tPR to take over AE budget from DWP so that focus can shift from employee to employer #capacitycrunch
    • This is genuine news and I hope it gets some publicity- it’s high time the public purse started targeting employers rather than employees, in practive the distinction gets blurred as we move into 2016.
  • tPR keen to encourage self-service onboarding interfaces that enable STP says Neil Esslemont.
    • There is still too much confusion about what an employer can and cannot do without advice. Neil confirmed that employers can select a workplace pension for their staff without advice. It seems the Pensions Regulator is keen to encourage self-service (the AE section of tPR’s website is getting there but needs to be considerably more segmented in its approach- right now it is all things to all employers and is a little confusing as a result- we are relaunching the auto-enrolment section of for late 2014 stagers and suggest tPR does the same.
  • The majority of individuals have staged but the vast majority of employers haven’t. This is all about the automation of the onboarding process
    • This was the key learning of the symposium, There was general consensus that there isn’t a capacity crunch in business as usual provision of investment and record keeping services but an acute problem on boarding (implementing) those services. More needs to be done by providers to get employers integrating workplace pensions using “straight through” technology.
  • Are smaller employers going to leave AE too late? asks Neil Esslemont-tPR? Will existing pension be fit for purpose can they get a new one?
    • There was a cute observation from Mark Ellis who has operated payroll for the kind of organisations that are staging in 2014, he reckons they are habitual “last minute jonnies” and the biggest risk of a capacity crunch will be created by their brinksmanship on timing.
  • 200k employers to stage in last quarter of 2016 says tPR- that’s a Capacity Crunch! #AEO2014
    • The problems faced in 2014 had better be sorted because this is just a dress-rehearsal for the trauma to come 
  • Interesting new chart from tPR shows considerably more employers in A4 2017/Q1 2018 than seen before
    • The numbers of employers being deferred into the back end of 2017 seems to have increased dramatically since the last time I saw the staging chart

Following Neil’s opening remarks the 50 or so delegates split into four groups to consider whether the capacity crunch was on its way, when it might happen and what was a “worst case scenario”.

I noted some interesting comments from the floor

The Regulator mentioned that their current biggest concern was with the problems of hidden companies. Many employers use larger employer’s payrolls to pay staff, they are either getting employee’s staged early (as part of the auto-enrolment of other employers, or not at all- as the parent omits these employees (rightly pointing out that they are not their obligation). In the majority of instances these employees are going to be staged in the end of the party sweep in 2017.

The Regulator also had encouraging news on Registration. There had been little evidence of non-registration of employers staging so far (though some had registered late).

The Regulator suggested that where the system was creaking was with companies running out of time with their monthly cycles – typically when they operated a payroll tight up against month end.

So what are we to make of this? I took away a feeling that the administration of auto-enrolment was going well, with no fines being dished out as yet, it does not seem to be auto-enrolment process that is the major concern.

Of more concern was the lack of awareness of what providers were up to and the feeling that both with the legacy of small schemes and with the new schemes being written there was a danger that the pension schemes into which money flowed- might not be fit for purpose.

There were calls for the DWP to publish the capacity of providers to take on new business (not just NEST but other mastertrusts and indeed insurers running GPPs). This sounds like a great idea. We’ve long thought that what is needed is a clearing house to ensure that employers are aware of the choices available (smart readers will have worked out that this is what may well end up being!

The consensus was that while 2014 looks like it will work, a lot depended on insurers like Legal and General, Aviva ,Friends and the Scots staying in the game for the smaller end of the SMEs in 2015. Encouraging noises were heard from NEST and People’s who were both represented and sources close to NOW suggested that there was no diminution in the appetite of these organisations post 2015.

When it came to doom mongering, a number of worst case scenarios were touted. To me the most likely threat to auto-enrolment comes from the anti-red-tape campaigners and those who argue that any additional burdens on small business inhibits the “growth agenda”. Political change in 2015, especially a violent swing to the right is to me the main threat.

There was a substantial body of delegates who considered the failure of auto-enrolment might damage the reputation of pensions, my feelings are that the reputation of pensions is pretty well impervious to damage- pensions have a reputation for failing to deliver and the only way is up!

So what is to be done from all this talk (and reading)?

If the CIPP’s Friends of AE are to develop into a meaningful group, there has to be collaboration and a willingness to make auto-enrolment work. Frankly comments about the desirability of failure to suit the business models of some recovery experts, is not helpful. Any hint that there is a secondary agenda at work will not go down well with anyone outside the industry and I suspect that the majority of people in the room have much more self-interest in a successful auto-enrolment process than market failure.

The group is now likely to split into a number of work streams, I’ll volunteer myself to work for a more effective system of sourcing good pensions, others will continue to hurry up the payrolls, others should work towards sorting out problems at retirement and I’d very much hope that the accountancy bodies represented in the room will step up to the plate.

Nothing but good can come from this meeting and I’ll finish by thanking the CIPP, Wragge and Andy Agethangelou for some excellent work.

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AE one two three

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Time is the new currency of information

time-money-235x300Sometime this week, Paul Lewis announced he had more “followers” than the Independent newspaper had “readers”.

I thought that telling.

I read the Indy, but mainly from @simonread ‘s tweets and I probably read more BBC stuff through @paulewismoney than from browsing its website

Infact, I’m now down to about 15 news peddlers who supply me with the feeds I need to keep abreast of my essential information. They include a couple of Government departments, a handful of journalists and a few mavens such as @robertgardner  and @pensionsmonkey and @josephinecumbo

There are about 3000 people who I follow and will contribute to the core feeds and I’m sure as soon as I finish this article, I’ll be adding a few more names to the mavens list (because such lists always offend those not on them more than they relieve those who are).

Of course Paul and Rob and Tom are Jo are not being purely altruistic. They are all on various steps of a ladder towards some kind of maven magnificence where @mashable and the super-mavens hang out. Or put it language that Micky Clarke would understand- they (we) want to become the go to person for the stuff they’re selling.

Which is really no different from hiring someone to stand with a billboard on the mall when your shop is down an ally. If you’re the little man and there’s a big fat FT or Guardian or BBC gravatar to compete with.

In this digital landscape we need some definitions of our job roles- so here are my three

New definitions

The Maven

I like the word “maven” which Wiki describes as a

“trusted expert in a particular field, who seeks to pass knowledge on to others. The word maven comes from Hebrew, and means one who understands, based on an accumulation of knowledge”

The Oracle

I also like the word “oracle” where the comparable definition is

“a person or agency considered to interface …. literally meaning “voice from the sky””

Although Larry Ellison has rather bagsied the commercial definition , the Oracle still seem the spiritual upgrade that mavens can aspire to- (give them a gourd for gaw’d sake). @mashable and Martin Lewis are my Oracles – when they speak, I click and usually click into action.


There are a whole load of other roles you could give people- I was always fond of Philoctetes- the guy with the smelly foot who was banished to an island of his own in the med from where he delivered malevolence (you know the type) and there’s the agony aunt and a whole legion of smart-arse commentators who make their fame from defaming others- this lot can be consigned to my media Rm 101.

The Editors

Our role as recipients of the maven’s munificence and the Oracle’s oratory, is as editors. But whereas with terrestrial newsstands – we choose what we pay for -with the digital newsstands, we edit out the noise we don’t want. Cutting unwanted noise from your twitter feed, de-linking and spamming unwanted mail are now necessary parts of our daily function, our timelines and inboxes demand our constant editing

Only mavens make it to my “messages” and only oracles to my inbox!

Time is the currency!

Our gift is our time- all else in this digital world is free. The FT may think it is able to charge for content, but heh- I’ve just got a three month subscription which I am determined to roll forever. We don’t even have to pay for porn anymore for Chris sakes! Because there are enough extroverts to feed the introverts, the web provides a pretty well perfect market.

So if you are looking to create a newsletter from the 500 people in your contact list/ digital campaign/Facebook likers or whatever, perhaps you should ask yourself.

  1. Is there any chance I will ever be a Maven (let along an Oracle)?
  2. Am I simply making work for the Editors?
  3. Am I wasting my time and that of others?

Believe it or not, I am asking myself this question before I post. Because every time you don’t leave a mark on the web you miss an opportunity, and every time you do, you impact your chances of being read next time.

Unless you are incredibly accurate, you will get it wrong 20% of the time- you will lose followers and you will see your social influence diminish (quite literally if you follow Klout).

“Our gift is our time” – thank you for yours.


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The GAD numbers that scream for annuity changes

In October 2010 I wrote two blogs about the jiggery-pokery employed by the Treasury to convince us that the reduction in the annual and lifetime allowances would save Britain billions in tax. It wouldn’t , hasn’t and won’t but that’s not the point.

The point of this blog is in the reference made in Mark Hoban’s statement to assumptions published by the Government’s Actuary’s Department in this paper (now archived but available on this link).

In the GAD paper, Trevor Llanwarne who was then and is now the Government Actuary states that he is changing the annuity conversion factors he uses to reflect improvements in longevity and in the discount rate (e.g. the forecast for long-term interest rates).

All pretty archaic you might say, but not a bit of it, these factors should hold good for the next 5-10 years says Llanwarne and they have.

GAD state that the value of a full linked annuity at 60 paid from an occupational pension can be put at 23.6;1 . So your DB pension of £10,000 pa could be valued at 60 at £236,000.

GAD goes on to state that the equivalent cost of purchasing a pension on the open market using an individual guaranteed annuity would be £321,000. (using a factor of 32:1)

That’s a discount of 25% to the occupational scheme or put another way, the occupational is a third more efficient in the payment of its pension.

Now pensions are liabilities and fall on someone’s balance sheet. If they fall on an insurer’s balance sheet, GAD are saying they are considerably more expensive. If an occupational pension scheme wanted to “buy-out” your £10,000 pa pension, it would have to cough up an extra £85,000 to get you off its hands and make you and your life expectancy the insurer’s problem.

So what extra security would you get from being insured by say Legal & General rather than Shell or BP? Well if L&G went bust, you’d have rather fuller protection than if the sponsoring employer went to the wall and Shell and BP might be considered riskier enterprises than L&G (in practice they have very similar ratings but you can imagine them diverging).

But is that greater degree of certainty really worth an increase of £85,000 or a third of the cost of your occupational pension?

Now we can argue all night about GAD’s assumptions, but it’s unlikely that you’d get better data or a more prudent methodology than that employed by Llanwarne and his department. These rates were designed for 5-10 years and none of the fundamentals in terms of the interest rates or life expectancy have changed since then

So we have to assume that the differences in the cost of the pension payable is down to the differing discount factors being used by occupational pension schemes and insurers (both or which GAD approves).

There seem to me (and I’m not an actuary) two factors that can make a difference to the discount factor- investment returns and expenses. Being mutuals and not for profit , occupational schemes do not have to factor in a payment to shareholders, they should have a lower cost base not having to market themselves against competition and they should be able to work on their own longevity data  and be able to make rather more accurate assumptions on the duration of their liabilities.

These are of course the arguments that are made in favour of collective decumulation by the fire-starters who want to move the default pension from the individual annuity basis to the collective basis (as per the occupational scheme).

They have as evidence of the practicality of moving to a collective system, the Netherlands, Denmark, Sweden- even our own States of Jersey, all of which run collective DC schemes which work on considerably lower pension conversion rates than those suffered in the UK by those purchasing individual annuities.

But against the argument put forward by the incendiarists (of which I am proud to be one), are those of the insurers. The ABI have issues 10 good reasons not to abandon annuities. The cynical might collapse them into one “vested self-interest”.

The insurers have a lot to gain from the destruction of the collective system, not least they stand to pick up the assets as they buy-out into insured annuities.

The insurers have much to gain from the replacement system where they not only manage the accumulation, but insure the decumulation through individual annuities.

But a return to collective decumulation would not benefit the insurers, it would mean much of the in retirement wealth of this nation was more directly invested and managed by trustees. Some collective schemes might be insured but , it would be safe to say, some wouldn’t.

So expect to see a number of smokescreens over the next few months

Expect to hear about the added risk of allowing collective schemes to insure their own longevity in mutual pools.

Expect to hear shocking stories of market crashes leaving widows penniless

Expect to hear of the demise of with-profits because assumptions made on equities are always wrong.

All these and more will be coming to a discussion board near you. But be clear about this. Underpinning this argument is governance and the governance we must trust does not come from the insurers but from the Independent Government Actuary, who decides on these things immune from vested interests.

In Trevor Llanwarne’s view, pensions paid from collective arrangements (scheme pensions) are a third more efficient than the equivalent guaranteed annuity.

The argument comes down to risk, are collective DC arrangements a third more risky than individual annuities?

Those are the terms of the debate which we should be having in this country. Forget all the rest.

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Quis custodiet ipsos custodes?



I am glad to see that Sam Broadbeck of Pensions Insight has not allowed the State Street scandal to fall off the radar just yet. Writing in Pensions Insight, Sam points out that while Transition Management is not the sexiest of topics, like the plumbing it is vital and like the plumbing, when it goes wrong it can make a very bad smell.


He quotes from the FCA report that State Street “Executed a deliberate and targeted strategy to overcharge certain UK Transition Management clients and to conceal those charges.


Sam goes on to re-publish certain e-mails published by the Regulator which will make uncomfortable reading at State Street HQ


“Did they (legal) look at the original agreement?”


“Absolutely not. Nor did they look at the periodic notice. This can of worms stays closed!”


“Btw- there is no way we can disclose our spread”






Within this interchange we have the three aspects that underpin almost all the financial scandals of recent years


  1. Abuse of trust- a custodian bank is paid to execute in the clients best interests – clearly this trust was abused.
  2. Legal complexity- the original agreement and periodic notices were not checked- frankly most legal agreements of this nature take too long to check and are written without the brevity or clarity needed for them to be effective
  3. Lack of transparency; the perpetrators of this fraud thought they could get away with it by keeping a lid on disclosure.


When you have complex issues, no transparency and people who feel they can abuse the trust of clients with impunity, you have a recipe for fraud. That recipe has been used again and again and is why the City has become so detested by the general public.




So how do we guard against this happening again, how do we guard against dodgy custodians, Quis custodiet ipsos custodiet?






There is not going to be an easy answer. We cannot dismantle the banking system and rebuild it overnight. We can only hope for incremental change brought about by better governance. It is not just the banks who are a party to this kind of thing, the same can be said of the fund managers who are complicit and of the consultants who are effectively “asleep at the wheel”. This kind of abuse happens because of a serial failure of governors (as David Blake points out in the Pensions Insight article.


The T-charter concocted by the TM practitioner to which Banks such as State Street signed up, is clearly not enough. A voluntary code of best practice cannot withstand the commercial pressure of sales targets (especially when they are not being met from Business As Usual). If you can meet your targets legally- fine- if not –cheat!


Having been on the sell-side myself, for most of my life, I know the deterrents. This is not my mind set, but I recognise it and it has certainly been in the culture of some organisations I have worked for.




“If the value at risk is my career, my reputation, even my liberty and the probability of me being found out is high enough, I may be tempted, but I will not cheat. If I see the chance of being found out and the consequences acceptable, I will cheat”.




The problem with the FCA’s fine is that though it is meaningful, it has not touched the perpetrators of the fraud, they are still well-off, have their reputation intact and have their liberty. There was no real stick to stop the people in that email chain.


The fundamental problem is that the “can of worms” could stay shut. The perpetrators were confident about that. Until consultants (Inalytics) blew the lid on them, they were getting away with this and it took some pretty special consultancy and some good work from within the clients to explode the fraud. There is insufficient of this forensic analysis to go round and I am quite sure that those swanky buildings in Canary wharf which house the custody sections of these Global Banks are paid for as a result of the low level of scrutiny on the custodian’s activities.


The ongoing problem is that problems like this are likely to be forgotten as “just another banking scandal”. Each time something like this happens, it causes a furore for a couple of weeks and is then swept under the carpet.


State Street will continue to be the custodian for a large number of UK occupational pension funds, the pooled funds into which smaller funds invest and the fund managers into which our personal pension contributions are paid. If you are investing with NEST or Scottish Widows, chances are State Street are investing your money.


I have written to the CEO of Scottish Widows and the CIO of NEST, I have not heard back from Scottish Widows and I have had a placatory email from the PR department of NEST.


But neither organisation has, as yet, made a public statement on the State Street custodial scandal. It seems to me that unless big state owned organisations are prepared to apply their own sanctions and either state their disgust at this corporate theft or in extremis, sack the managers, State Street will get away scot free.


The message will go out to the City that white collar crime carries a low tariff, that the risks are acceptable, the accountabilities low, and the chances of getting caught nugatory.


The culture of governance that should apply in the City of London, should be driven not just by Regulators, but by customers and by all who care about the reputation of financial services. It is simply not good enough to call this someone else’s problem. I am quite sure that those who read this within State Street will not be inviting me to any more conferences, I am sure I will not be asked to interview again for any of their jobs and I suspect that I will continue to be regarded as a pariah by those in the City who wish to maintain the current status quo.


However, ultimately the answer to the question Quis custodiet ipsos custodiet?


…………Is that we all do.secrecy



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

“You’d better shop around” – oh really?

Dail Mail AnnuityThe FCA have reported after their thematic review and told us what we already knew, the annuity market is not serving those who are buying annuities.

Has this review anywhere to go? Micky Clarke on radio 5 live this morning fumbled with the difference between between Government interventions the charge cap, the annuity market , goodness knows what. Michelle Cracknel struggled to get across her point , some fellow from Killick and Company struggled to promote his firm’s attempts to close the advice gap formed by the RDR.

Having listened to this morning’s debate, everyone wanted to deal with the problem as an issue of distribution, as if purchasing an annuity was as inevitable as getting out of bed in the morning.

The problem for Micky and for just about everyone but the coterie of financial services professionals who profit from the current system, is the public don’t want to go shopping around for annuities. They would rather leave this decision to a trusted expert. That’s what they do with National Insurance, that’s what they used to do with their company pension and that’s what they’d like to do with whatever they’re paying into now.

Why don’t we start this debate, not by looking at how to fix the system, but why we ever came to think that individuals were better off buying a pension for themselves in the first place.

I haven’t read the FCA publication, frankly I don’t want to. I don’t think we needed a thematic review to tell us what we all knew already. we need a review into pension policy that asks ourselves why we are where we are and what we can do to improve things.

We have a perfectly functional state pension system that works efficiently and though it has been a political plaything for generations, is still fit for purpose.

We have defined benefit company pensions which languish beneath the yoke of mark to market accounting but struggle on like sturdy oxen.

And we have the new DC workplace pensions which , no matter how hard we work on the accumulation side, waste a good proportion of their output on a system of pension purchase that is not understood, not properly used and which produces results which can only be described as disappointing.

The market failure is not one that the FCA can address. It can only be addressed through a proper national debate on risk and reward.

We need to ask ourselves how much certainty we require in retirement and how we want to organise our pensions. If we want no risk and want to organise around the insurance companies then we should continue with the current system.

If on the other hand, we are prepared to live with less certainty and want to organise our private pensions on a collective basis, we should return to the system that prevailed prior to the introduction of guarantees and solvency rules that have all but destroyed occupational pensions.

And if we don’t want either, we should put this matter on a truly collective basis and simply purchase more state pension with our pension savings.

Who takes the risk and how? These are the questions that we should be having a national debate about. The ever increasing confusion about annuities will continue indefinitely unless we define what underpins the conversation, what the real choice facing Britain are.

I will carry on banging the drum for this debate to happen, This blog will continue to argue for more strenuous debate and for thinking that goes beyond the vested interests of those who produce and sell annuities and alternative retail products,

At some point, someone will listen. Shopping around is the best thing we can do today, but it is not the solution to the problems with purchasing pensions with our money.

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

Money is no object? So long as you’re Etonian!


The water laps at the patio of our Eton waterfront house. Our next door neighbour has requested help as he is old and the water is at his door. We are the lucky ones, 40o yards down stream, past Romney weir, the floodwaters have taken over and half a mile further is Datchet, now the habitat of every camera crew south of Media City Salford (from where I write).

Datchet and Wraysbury are the villages directly below the Jubilee relief river, which has .luckily for us, saved Windsor and Eton from the worst of the flooding. It was the bright idea of Eton College and though the work was paid for by Berkshire council tax=payers, it’s the college that’s among the major beneficiaries. The lucky Eton College oarsman get their water from the relief river too and they are about the only ones who can row on safe water!

So when Prime Minister Cameron, Eton old boy and former pupil of said next door neighbour tells us that money is no object- he has previous!

The money to provide flood defences for our million pound houses has to be found somewhere and no prizes for working out what the political priority is. One Wraysbury resident was candid “I’ll give my vote to whoever sorts this out”.

Which all seems a little unfair on Somerset ,Gloucestershire and Worcester where the problems are chronic rather than acute, but voters rather less vociferous (and well-heeled). Yeovil , which sits on the edge of the Somerset levels, is a town well-known to me each winter as we make the 230 mile round trip from Eton to watch the Glovers.

Unluckily for those who live in that part of Somerset, they seem to be derided as voters as they are  as football fans , while lucky Berkshites like me are assured that “money is no object”, as soon as the wellies are donned, the Levellers are dismissed as “carrot-crunchers”.

The social inequality between Eton , Datchet and Wraysbury are one thing, but the craven pandering to the Bershite vote displayed by national politicians is something again.

Posted in flood | Tagged , , , , , | 2 Comments

Buying pensions with certainty need not cost the house


David Hargreaves

David Hargreaves

“We all live in a Robbie Fowler House” , sang half of North West England  (or so it seemed to any football fan ten years ago). The Fowler pension solution was to create a for profit social housing organisation with the beneficiary Mr R Fowler.

Nothing wrong with that , my friend Mr David Hargreaves would point out that this is sensible pension planning. Though the value of Mr Fowler’s property portfolio has risen and fallen over the past ten years, the income has risen in line with rents, and rents tend to rise with the cost of living. As David never ceases to point out to me, this is pretty well what a pension should do.

David’s point is that what people needed was Robbie’s capital and what Robbie needed was people’s income. Robbie simply cut out the middlemen (and we were all winners).

The British Government has access to capital through the Capital Markets but also from its citizens either through tax (unpopular) and through paying interest on people’s savings (popular).

Retiring people have quite a lot of savings, money that comes from their private pensions (25% of which is generally taken as a tax-free lump sum) and money from peripheral retirement saving (ISAs ,building society accounts and share portfolios (thanks Sid).

For those retiring, the first thing thing missing is the pay cheque, it may still come-diminished- but it is not what it was and may not be there at all. Instead there is a regular payment (hopefully) from an annuity and from the DWP in Newcastle and a lot of cash.

Recently the Government has opened the door to people who have cash and want more state pension. People retiring before 2016 can increase their basic state pension by up to £25pw by paying a cash sum to the Exchequer (details here).

This seems a sensible way of going about things, provided that the rate of exchange from capital to lifetime income is fair. There are two ways for the Government to set this rate of exchange, either it can compete with the markets and give as little for your money as it has to (this is how the gilt market works) or the Government can offer you a pension based on what it projects as being its true costs of doing so.

Now you might think that the Government would be hamstrung using the second methodology and would have to pass on all the inefficiencies of the public sector. It may surprise you to know that , at least in terms of paying pensions, the Government is an extremely efficient provider and in fact it is able to pay, pound for pound, more pension for your capital than anyone else. There are a number of reasons for this

  1. The Government is genuinely not for profit and it does not have high fixed costs relative to the size of the population it serves
  2. The Government does not have distribution costs, it is one of one  in the UK.
  3. There is no fund to pay the pensions , there is however a guaranteed source of revenues to meet interest payments and the cost of people living longer than expected
  4. There being no fund, there are no fund costs
  5. The Government is not subject to European rules on reserving which push up the cost of annuity provision to private suppliers

I could go on but won’t. The Government’s costs, relative to the private sector, are so much lower that it could buy back our savings and pay off the national debt (if it so chose).We would be pension rich and capital poor but like Robbie Fowler- we’d probably see that as a fair long-term exchange.

Re-reading some of my blogs from the Autumn of 2010, I am reminded that when the Government last set the annuity conversion rates for occupational pension schemes relative to personal pensions, they gave occupational pensions a big thumbs up. Read my blog Treasury stop messing with Pensions and you’ll get the idea.

The point is that the Government know very well that occupational pension schemes are able to provide certain pensions at a fraction of the cost of insurance companies. By extension they know that they can provide pensions much cheaper than occupational pensions. The question is why they don’t.

The only answer I can think of, for why the Government won’t extend the capacity to buy extra state pension beyond £25pw (and that for a limited number of annuitants), is that to do so- it would have to accept that the annuity market is hopelessly inefficient. Indeed it would also have to admit that were occupational schemes be able to behave like Government and pay pensions on the expectation of future revenues, they would be almost as efficient as Government (they wouldn’t have quite the economies of scale).

Which brings me back to Mr Fowler and his DIY pension , based on him being a for profit social housing company. What Mr Fowler has done, is cut out most of the layers of intermediation between him and his pension. Those in the Kop and the Kippax could as easily have sung “we all live in the Fowler pension fund” (except it isn’t quite as fun).

The day that the State takes the bull by the horns and starts punching to its weight on pension savings, is the day I know the Treasury are serious about retirement living standards. Right now, I reckon they are in the ABI’s pocket and would rather not talk about the true cost of the State paying pensions for fear of offending the life companies on whose revenues , short-term finances depend.

We are in the grip of a private sector double-bind which is quite unnecessary. When the nation wakes up to the fact that we are better off with the efficiencies of state paid - or at least state underwritten – collective pensions , then we can dispense with our reliance on insurers.

Or put the other way round, the moment that the Treasury wakes up to the fact that it has more to gain by getting its financing from the retirement savings of its population than tax-revenues from the private sector insurance companies, then we have a way forward.

At the moment, we have to recognise that the true power in pension provision, rests with the insurers who seem capable of wriggling out of anything, simply by playing the get out of jail card that pay more tax.

Cutting the private sector out of the payment of private pensions altogether is not feasible; nor is everyone living in a Robbie Fowler House. Ultimately we need some level of intermediation to make the system work. But I argue that currently we have the balance wrong and it’s time that the Government progressed its role as a partner in private provision, further than the tentative steps it has taken this parliamentary term.

Posted in dc pensions, defined aspiration, pensions, Public sector pensions | Tagged , , , , , , , , , , , , , , | Leave a comment

The shape of things to come? US class action on DC fees

FidelityThanks to my favourite Swedish lawyer, Per Andelius for this extraordinary story.

Fidelity are being taken to court by members of their DC plan for charging $355 record keeping fees per member against an underlying cost of $10.

Why this matters because the suit is against the US equivalent of the soon to be launched UK IGCs (Independent Governance Committees). Fidelity employs a sister organisation to do the record keeping for its investment work. This is called bundling and it’s what happens with almost every UK DC insurer. It’s as important to the master trusts , though they generally use third party administrators so the potential conflicts are less obvious.

The argument is simple, even where there isn’t a legal obligation to cap fees, there is a moral obligation on fiduciaries not to “engorge” – (great word).


Boston, MA: An excessive fees ERISA lawsuit has been filed against Fidelity, alleging Fidelity violated its duty under ERISA plan laws by failing to act in the interests of the plan or plan participants. According to the lawsuit, the actions of the ERISA plan fiduciaries cost plan participants around $15 million per year from 2008 to 2013.
Excessive Fees ERISA Lawsuit Filed against FidelityThe lawsuit (Yeaw vs. FMR LLC, Case number 14-10035) was filed under the Employee Retirement Income Security Act of 1974 (ERISA), and seeks recovery of losses and “disgorgement of unlawful fees and profits taken by Fidelity.”
According to the lawsuit, Fidelity and other mutual fund advisors have revenue-sharing agreements with client plans. Under those revenue-sharing agreements, the fund advisors (in this case, Fidelity Management & Research Company) pay a portion of revenue received from the mutual fund to the plan’s record-keeper (in this case, Fidelity Investments Institutional Operations Company and affiliates).

Large plans, similar to those of Fidelity, the lawsuit argues, often receive a rebate for the revenue-sharing plan in situations where the amount given to the record-keeper greatly exceeds the costs of administering the plan. In other words, they agree to limit the fees to a certain amount and the excess then goes back to the plan.
The Fidelity Plan, however, did not receive any such rebate or revenue-sharing recapture, and according to the lawsuit, paid $15 million a year from 2008 through 2013 to record-keepers. According to the lawsuit, based on fees in 2012, the record-keeper received approximately $335 per plan participant per year, whereas the plan could allegedly have been maintained for $10 per participant per year.
Plaintiffs allege that during the class time, the Plan should have paid around $3.3 million in record-keeping fees, but in fact paid an estimated $92 million.
“To add insult to injury, Fidelity and its managers reported that Fidelity was providing recordkeeping and administrative services for ‘free’,” the lawsuit states. The defendants were responsible for setting the terms of a relationship with service providers, but had an interest to act in the best interest of Plan participants and did not do so, the lawsuit claims.

Could this be what the OFT had in mind when it recommended that IGCs might be the best way to create value for members of UK DC plans?

We will follow the progress of this class action with interest, not just because it impacts directly on one of our leading DC providers, but because it sets a precedent for DC Governance in the UK.

Posted in actuaries, advice gap, Bankers, governance | Tagged , , , , , , , , , , , , | 1 Comment

What do you do when the lights go out?

state street

Professional Pensions run the story of the £22.9m fine dished out to State Street who had been double charging clients for years. I had thought of custodians till recently as their name suggests as guardians of assets, not as asset strippers.

The six clients affected by the overcharging included Ireland’s National Treasury Management Agency, the Kuwait Investment Authority and the Royal Mail and Sainsbury pension funds.

The fine is one of the largest imposed by the watchdog in recent years, and the latest where financial firms have been found to put profit before the interest of their customers.

Between June 2010 and September 2011, State Street UK , a unit of the world’s second-largest standalone custody bank State  Street, overcharged six clients a total of $20.2 million, the Financial Conduct Authority (FCA) said.

Excellent as the Professional pension story is, I prefer the comments sent me by Gina Miller that appear here but for those who want to read the article here it is!

I confess I’d never really heard of “transition management” until a couple of weeks ago. Apparently, it is a service provided by some banks and dealers to big investors who need to sell, or buy, or sell and then buy, a bunch of securities all at once. This would happen if, for instance, the investors “were changing fund managers or investment strategies,” because I guess you can’t just have your old fund manager messenger over all your stuff to the new fund manager? (The strategies bit I get.)

I heard about it a few weeks ago because ConvergEx got in some trouble with the Securities and Exchange Commission for mismanaging transitions. Just from the structure of the business you can understand how this would happen. If you’re selling like $5 billion worth of stuff, and then buying it all back again, for whatever reason you do that for, you will simultaneously:

  • care a whole lot about how much      you’re paying in commissions, because two cents a share might work for      your everyday trades but not for trading all of your stuff at once; and
  • not really have the desire or      ability to keep track of exactly what’s happening what with all the buying      and the selling, because there are just so many trades.

And so you get ConvergEx’s SEC settlement, where ConvergEx charged clients small, highly competitive, fully disclosed commissions to execute their transitions, and then snuck in secret markups whenever the clients weren’t looking. Literally — ConvergEx would pay attention to time differences and charge markups on trades that happened when the clients were asleep.

Today the UK Financial Conduct Authority settled a pretty similar case with some UK bits of State Street Corp., which the FCA found overcharged six clients by a total of just over $20 million. The Final Notice is full of funny quotes; let’s read some!

First there is Client A, who had a 4.7 billion euro portfolio to transition. It hired State Street’s Portfolio Solutions Group (“PSG,” or “EMEA PSG” since it covered Europe, the Middle East and Africa) to do it, for a flat management fee of 1.65 basis points, later reduced to 1.25 basis points for a portion of the trade. How did State Street decide on that price?

In deciding what bid to make to Client A, a series of emails were sent between members of PSG senior management which included the following comments on how revenue would be earned from the transition: “Gotta win this one! Any ideas how to get more revenue would be appreciated.” “How about a 1bp management fee or something of that nature, no commissions and then take a spread? We need to charge fee then otherwise they get suspicious.” “Just to clarify – 1.25bps is the management fee. The extra quarter point makes it look like we actually thought about it and did the calculations.”

My favourite word there is “the”: “we actually thought about it and did the calculations,” as though there were some math that could produce the right answer for how much State Street should make on these trades. There are no calculations! It’s just, what feels right to the client, what can you get away with, etc. State Street quite charmingly thought that a number with three significant digits would seem more real than a number with one, and that that would help it get away with more. Surely no one who takes the time to write three whole digits and a decimal point would rip you off. Only harmless nerds would write three digits where one would suffice.

But, nope, State Street, like ConvergEx before it, charged various secret undisclosed markups. State Street was supposed to make $1.6 million from Client A in agreed fees, but made an additional $3.7 million from undisclosed markups. Clients B, C, D and F are similar: State Street agreed to various small fees and then also took a bunch of larger undisclosed markups.

But my favourite is Client E, who did two fixed income transitions with a total value of about $6 billion. This client was focused on paying zero:

Following communications between EMEA PSG senior management and Client E prior to the first transition, in which Client E requested that no explicit commission be charged, EMEA PSG senior management proposed to undertake the transition on a zero commission (and no management fee) basis. In a series of communications between EMEA PSG senior management and Client E, EMEA PSG senior management made clear that State Street UK preferred to charge a disclosed commission, but in this instance it had arranged to receive: “a share of the spread from the ‘other side’ (the successful/winning counterparty for each individual security as chosen by us as your agent in a competitive bid process)”

So the FCA quibbles with State Street’s use of the “other side” — obviously, Client E was paying more to buy a security than its seller was selling it for, and that was going to State Street — but there are more interesting things going on here. For starters, note that Client E wanted to pay zero. Client E was not an idiot, or not exactly: It knew that it was going to pay State Street for its time and transition-management mojo. It just didn’t want to pay any explicit commission, for whatever reason, and that reason probably wasn’t a good one.

And State Street knew that, and said, no, please, we want to charge you an explicit commission. I like to imagine that this was because it knew that it couldn’t resist temptation. And there’s no temptation like zero commissions. Here’s how State Street management reacted to learning it was getting a zero-commission mandate:

On being awarded the second fixed income transition for Client E, members of EMEA PSG management exchanged emails commenting: “Nice!” and “Back up the truck!”

Right? State Street made $9.7 million on this one, almost half of all the overcharging that the FCA identified. There’s nothing more profitable than a zero-commission trade. If you’ve agreed to a 1.65 basis point commission, I guess you can go ahead and charge secret markups, but you’ll know that you’re being a jerk by doing it. But if you’ve agreed to do a trade for nothing? The client knows that you’re sneaking something in somewhere. They’re practically asking you to back up the truck. State Street was happy to oblige.

Similarly, the FCA says “TM services may be required when a client needs a large portfolio of securities to be restructured, or when a client decides to remove or replace asset managers.” Even odder is Wikipedia: “A typical example would be a mutual fund has decided to merge two funds into one larger fund.”

And they plotted it as obnoxiously as possible:

members of PSG senior management continued to discuss possible other sources of revenue over email: A: “need to be very creative here” B: “we will.”

Uggghhh uggghhh ugggggghhhhhh. Nothing good has ever happened after a banker says “need to be very creative here.” If I were designing the e-mail and instant-message blocker software at a bank, I’d block “creative.” “Creative” is a terrible word.

 Your guess is as good as mine as to how 1.25-1.65 basis points of 4.7 billion euros came out to $1.6 million. (This is sometime in 2010-2011, when a euro was between say $1.20 and $1.50.)

Someone, somewhere, was getting a report from Client E saying “here’s how much we paid in commissions,” and Client E wanted that report to say “nothing, aren’t we great.” And was willing to pay more in trading-costs-not-labeled-commissions to achieve that goal.

If you’re still with me and haven’t either slit your wrists (because you’re a fiduciary and you know this has happened to you or you’re not and know it’s you whose been financially raped) read on.

We are not powerless to stop this kind of thing from happening. There are organisations in this world who know as much as the banks do, who can investigate this kind of thing, stop it happening and get your money back when it does. I would be less than transparent if I didn’t admit to having some skin in the game working with a Swiss firm, full of ex-bankers, who do nothing but this kind of work.

The biggest problem they find is that no-one wants to be seen to be a mug. So no-one is going to open the door to someone who is going to laugh in your face.

This is why we have governance. Governance doesn’t just mean trustees, sometimes it’s the trustees who made the mistakes and are least able to admit it. Sometimes the governance has to come from those who pay the bills (in the UK- the sponsors of DB pension plans).

And the reason that this matters is that the money that was stolen by State Street, came ultimately from our pockets. The bill for the trades was not explicit, it resulted in poorer fund performance which would have increased the deficit of the pension schemes of Companies A to F. This would have increased the funding obligations on the sponsors and left them with less money to pay you your wages (or if they became insolvent) your pensions.

Which is why governance matters, why charges matters and it’s ultimately why we need total transparency in what happens within the funds we use.

We may not know what goes on when the lights go out- but it’s seldom very savoury.

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

Employers can help staff with their money – if only we’d let them

what would you payI had the pleasure of meeting with Jane Drysdale last week. She is HRD of OCS – the office cleaning people who employ 35,000 people , many on zero-hours contracts, many on minimum wages and many on the cusp of eligibility for auto-enrolment.

I don’t mean “pleasure” in a meaningless way, it really was good to hear a senior manager of one of our largest employers so committed to the welfare of staff who are often treated as little more than business assets (or liabilities).

What interested me most was the self-reliance OCS have adopted as a mantra. I have had it confirmed by the advisers OCS used that she did not outsource the problems of auto-enrolment to third party advisers but used the resource of the insurer (L&G) and the adviser (Capital) to deliver the shooting match on time and compliantly for a consultancy coast of £25,000.

Admittedly OCS had to spend money on adapting payroll, but this still works out at less than £1 per head, How many companies can make that boast?

Yesterday I was speaking at the Financial Service Forum about workplace distribution. The question under discussion was “Will the next ten years see a rise in product distribution through the workplace?”.

The conclusion , as far as consensus could be reached, was that employees would only buy stuff through an employer if they couldn’t buy it cheaper on Amazon and that the main thing that employers can save their staff is “time”.

I’d add to that , that employers can protect their staff being ripped off by the wrong kind of financial products, overly expensive pensions, poorly priced protection and  the kind of malpractice at retirement we’ve read so much about recently.


Linking my conversation with Jane Drysdale and at this event, it is becoming clear to me that the role of today’s adviser is moving to facilitation rather than the traditional model of employer reliance.

Employers who can do it themselves and touch base with advisers on a “needs must” basis are those that will prosper in the new age of compulsory workplace pensions.

This is not to say there will not be employers who will spend large amounts on advice, but those employers will do so because they choose to rather than have to.

Without the crutch of commission, many advisers have withdrawn from the workplace and those that remain there, now concentrate on providing benefit infrastructure (wrap and flex). The core investment product- the pension , is now a “non-advised” item both in the sense the DWP want it to be (commission free) and because most advisers have fled the coop.

The departure of traditional advisers is most important for the relationship between employers and the non-regulated business advisers , who traditionally have been excluded from assisting on pensions and other benefits through the presence of advisers.

We would like to see accountants, book-keepers and payroll bureaux stepping into the breach. They have strong professional bodies such as the CIPP, CIPD, ACCA and ICAEW, they have recourse to ready information through their own trade press and they have access to pension information through TPAS and the self-help sites  run bythe Pension Regulator – oh and !

While the battleground today appears to be the ownership of auto-enrolment infrastructure, the issues of pensions and personal debt lurk as the elephants in the corporate board) room.

Whether that’s in some swanky Mayfair HQ or some local lock-up, the issue is the same.

It’s time companies got their mojo back and got real with staff. Technology can help but in the final analysis, it’s the company’s key staff, its staff welfare champions, who will sort out those elephants.









Posted in auto-enrolment, Henry Tapper blog, pensions, Retail Distribution Review, Retirement | Tagged , , , , , , , , , , , , | Leave a comment

The quality of savings is constrained



Apologies to the bard – my point is this; the act of saving is laudable but its impact is variable. Saving is not always a good thing and as a spending choice has to compete with debt repayment and speculation for the disposal of your income. The fact’s that those who have speculated in housing and those who have managed debt have tended to proper more than those who trusted the savings industry (especially the life insurance industry).

Scott Gallaher (IFA Leicester) voices a view I have heard from many in pensions, that charges do not impact on the purchasing decision of savers. In a narrow sense he is right.

In my twenties and thirties I saved into a variety of savings plans and it was not until I wanted to consolidate benefits late last year, that I was able to compare the various strategies I’d used. The regular savings plan with Bradford and Bingley had accumulated £8,000 and was trundling along at 0.3% interest. I went down yesterday to Santander to cash it in, mindful that there was a terminal bonus to be paid. The cashier told me there was but he’s have to go to another till to get the cash. The terminal bonus was £1.41 (his till didn’t have any pennies).

Two plans I took out, a Target Life Money Plan and a General Portfolio Retirement Builder have no transfer values. Indeed I was told by a representative of Target Life , when I pressed, that my plan had a negative transfer value, so far had expenses outstripped performance.

Whether through inappropriate investments or high charges, several of my savings vehicles have turned out to be pretty useless. While others haven’t. The trustees of the Gissings occupational DC plan (now Capita) have done a cracking job for me, as have Investment Solutions and the Prudential; the returns on these plans have been in sharp contrast to my Allied Dunbar s226 retirement annuity which has struggled to overcome the modest target of returning more than contributions, the return on my NPI contracting out pension has been equally dismal.

Not one of these plans invested in with-profits and there were no guarantees to protect or hinder the growth of my plan. The only factors that impacted on my investment -  the typical duration of which has been 20 years, has been charges.

Following the advice of my mentors David Blake and Debbie Harrison I have cut and run, transferring my savings into a single vehicle which invests in a way I understand and at a cost that I know. By doing so I have reduced the management charges on my portfolio from £10,000 to £3,000 per annum, though I have had to pay a penalty to get out of some contracts where clever actuaries imposed exit penalties to ensure they got their pound of flesh (why the Merchant of Venice features in this blog is obvious!)

You may ask how it was that I took such crass purchasing decisions as to trust Mr Bradford and Mr Bingley, Allied Dunbar, NPI et al. The only answer I can give is that I fell for the brand. Not clever I know, but it’s what millions of us have done. We have fallen for brand “savings” and bought into concepts such as “capital reservoirs”, “financial security”, “prudence” and “regular savings” as a panacea for the insecurities of day-to-day life.

“It’s alright” I used to say to myself “I’ll be ok in the long run. And I am, but no thanks to the financial institutions mentioned above. It was thanks to good employers setting up well managed schemes that I have what I have now. The fiduciaries of Zurich, Eagle Star, Prudential , Gissings, Capita and Fidelity have protected me from myself.

But no such protection is available to many employees who have bought into poorly performing investments which underperform because of unconstrained charges. I have to add the products have been generally sold by salesmen who have had the blind belief that nobody is going to turn them down because of a high AMC. Sadly they are right- people need protecting from themselves.

We need strong governance. I believe we need Government intervention but it looks like we are not going to get a cap, so we have to move to plan B.

Plan B is to name and shame bad governance. To “out” high charges where the charge is not about value but about “money left on the table” snaffled by the various intermediaries in the financial food chain.

Plan B is about better governance and will happen when insurance companies and banks start treating the customers in their legacy products fairly.

The teller in the Basingstoke branch of Santander told me that the £1.41 final bonus had to be paid out in cash because it was too small to be added to the digital transfer of my funds. We laughed when I explained that I’d bought the plan on the promise that as a mutual, Bradford and Bingley would be sharing its profits with me.

It was a bitter kind of laughter, like me , he had been with the Bradford and Bingley for twenty years.

My experience as a consumer demonstrates the frustration that many people I know for the financial services industry and the people who work in it. This is not an attack on @IFALeicester who I know to be a good guy, it’s an attack on the all-pervasive attitude that so long as people are saving it’s alright.

I’ts not alright, the quality of saving is constrained by the savings institution who put themselves in front of the customer. They  allow high un-transparent charging structures to destroy savings and it is the most financially vulnerable who are most at risk. The man or woman who is not protected by a good employer.

This morning I’ll be visiting a NEST, an organisation set up to ensure that the savings of those auto-enrolled into pensions do not get ripped off. Thankfully we have such an institution for future savings, ironically NEST will not accept transfers from under performing legacy plans.

We still have a long way to go till I can say “the quality of savings is not strained”.

Posted in auto-enrolment, Retirement, Start ups, workplace pensions | Tagged , , , , , , , , | 2 Comments

A full frontal retreat on charges

full frontal


As flagged by Jo Cumbo and the FT , Steve Webb has duly climbed put the tanks into reverse. The full frontal assault is now an embarrassing retreat with no certainty that April 2015 will provide anything at all.

“We have consistently encouraged firms to start getting ready for automatic-enrolment 12 months ahead of the time the new employer duties apply to them” said Steve in a written statement to the House

“Therefore, to give those employers at least 12 months notice of  the rules that will apply to them, I can confirm that any cap on charges will not be introduced before April 2015″.

I’d like to remind Steve Webb of the blogs I wrote and he read in 2012 and early 2013 requesting the Government introduced quality standards then. In our visits to the Pension Regulator and DWP in early 2013 I made the same request personally.

If the Government is to expect timely behaviour from employers, can’t the employers expect timely behaviour from the Government? And can we expect any action on governance when the Pensions Bill for 2014 will only focus on the management of the DB legacy and pot follows member?

And where does this leave us? On the face of it , members joining workplace pension schemes post April 2015 may get some extra protection but what of the 2m who have already joined, regular readers of this blog will remember my tirades at a soon to float department store for setting its AE scheme up on a commission basis, with AMDs and a charge-busting fee for the 30% of the workforce turned over each year – what of them?

What too of the Independent Governance Committees, already delayed and showing no sign of emergence (the ABI waiting on the DWP). If the rules surrounding “what makes for good” are still to written, what will the 30,000 schemes due to be used for staging between now and April 2015, do to make sure they comply?

This smacks of the darkest hours of RU64 in the days before the introduction of stakeholder.

Even this morning, one of my colleagues received another request for us to help them understand hidden charges. We don’t like the blind leading the blind and want to help but how is it that on January 24th 2014, the DWP are still getting to grips with how funds work.

This is no time for the self-validation that the pension minister indulged in yesterday. No one doubts auto-enrolment has worked in getting millions of non-savers saving but into what?

If the DWP are still asking people like me how charges work, then doubt has to be cast over the entire governance procedure.

So before we go any further on this “retreat from Moscow”, let’s ask if we can’t dig in and hold our position. The ABI agreed to apply proper DC governance to protect members from the worst excesses of DC malpractice, they agreed an audit of existing workplace schemes to root out rotten apples and they have separately made noises to take action to improve the lot of those at retirement and trying to aggregate little pots into big pots.

Let’s make sure that amidst all the celebrations, we don’t let these promises be shunted off into a post election siding. If we are to restore public confidence in pensions, we need action not more procrastination.

Posted in advice gap, annuity, auto-enrolment, dc pensions, defined aspiration, pension playpen, pensions, Popcorn Pensions | Tagged , , , , , , , , , | 1 Comment

I want my, I want my, I want my IGC…


It’s been a while since the Faustian pact between the OFT and the ABI that kept the Competition Commission dogs off the insurers. For those with long memories, the price paid by the insurers was a promise to establish Independent Governance Committees (ICG) to provide some much needed transparency into the management of GPPs and Stakeholder Pensions.

So far there’s been no sign of them so on my recent trip to ABI Towers, I asked tousle-haired supremo Otto Thoresen and his pensions policy wonk Yvonne Braun exactly what we were waiting on. Apparently we’re waiting on the DWP.

Having been at the DWP earlier in the week (and the tPR last month) I’m not holding my breath.

I want my IGC and I want to see some pro-activity from the insurers and their trade body (which is what the ABI is).

You might (well) ask why I am getting hot under the collar about this; here’s why. Governance is the key to getting better pensions. These IGCs are supposed to be populated with people (like me) who care enough about pensions to give up their time (possibly on a pro-bono basis) to make sure that the workplace pensions that carry the retirement security of the 11m newly enrolled plus as many already in contract based workplace arrangements.

I’m not playing fantasy Guv’nor just yet but here are the eight key areas that IGCs could be concentrating on to make workplace pensions better today

  1. Annuities- currently around 1 in 2.5 people taking their tax-free cash from a personal pension, buys an annuity with the balance using the open market option. This is a disgrace and the IGCs are quite capable of driving this figure up towards one in one.
  2. Alternative at retirement products- there is no reason why insurers could not promote awareness of alternatives to conventional annuities – such as Alliance Bernstein’s Retirement Bridge, income drawdown and the range of alternative annuities on the market – I didn’t say sell- I said promote awareness
  3. Default structures- there are alternatives to lifestyle but they are not getting traction. Target dated funds and Managed DC are the main two and I want to see a statement of investment principles from every IGC telling me why it has chosen the lifestyle route.
  4. Costs- I want to know what I’m paying in explicit charges and I want to know what I’ve paid in explicit charges (the change in tense is about the nature of charges to NAV, which can only be assessed retrospectively)
  5. Member engagement – why shouldn’t members know what they’re investing in, and how their investment managers are using voting rights, and what steps they are taking to avoid their investments doing harm not good?
  6. Investment. I have no problem with smoothing so long as it doesn’t sacrifice too much growth. I not that Lord Hutton is joining Redington- the LDI house- note to Hutton, “DC needs LDI like I need a cream doughnut. We can’t gorge on de-risking- we need to have fit and lean strategies- pass me the salad bowl”.
  7. Internal controls; I want to see the FRAG and the ISO9001 and all those nasty boring documents that tell me that the execution of the processes is as good as I expect.
  8. Transfers; I want insurers to take the bull by the horns and get some portable into personal pensions.

It is not enough for the ABI and DWP and tPR to do the orderly thing “you first- no you first”. Somebody should be taking the lead and if no-one else will, I will repost this blog over every website in Christendom till we get some action.

There is no magic bullet that will restore confidence in personal pensions. We can’t make the employers great buyers overnight. But we can make the pensions that are bought “fit for purchase” by getting the governance right

We need our IGCs and we need them soon!


Posted in annuity, governance, investment, pension playpen, pensions, redington, Retirement | Tagged , , , , , | Leave a comment

Fund management’s like a car-boot, you’ve got to know what you’re paying (and what you’re buying).

hamletThis is a guide to the costs you incur when you purchase your units in a fund; at the end of this guide I explain what other costs go into the purchase of units in a workplace pension fund and how the fund management charges are likely to be capped in time to reduce the risk of the workplace pension not delivering a suffecient pot of money to buy a pension.

This guide does not cover what goes on at or after retirement, nor does it cover the costs of moving your pension pot from one place to another, those are related stories which we deal with elsewhere.

The “I” in this is Henry Tapper, Founding Editor of the Pension Play Pen and this forms part of a series of guides we are publishing, helping people understand how to purchase and manage a workplace pension.




When you buy and sell things, there is a generally a difference between what you get in your pocket after a sale and what you have to pay for the same thing. It doesn’t matter if it is a house from an estate agent, a stock or a share, or a pen-knife at a car boot sale.

We can call this difference a “spread” , a word that relates to the size of the gap between two things and in financial terms is short hand for “bid-offer spread” or “bid-ask spread”.

If we go to a car-boot, we incur two costs when we buy, the cost of getting into the market (a fiver at the gate) and the mark-up of the person we are buying from

It’s the same when we’re buying and selling a house; while the fixed part of the spread, what you are bound to lose- is the estate agent fee, the stamp duty and the cost of conveyancing, there is a second part of the cost which is down to negotiation. 

A story to make this easier to understand

I’ll give you an example. My Grandma bid for my parent’s house in 1960 and lost it at auction to a speculator, she wanted the house so much that she contacted the speculator who agreed to sell it to her for the cost of the auction fees and £200 (then 10% of the sale price).

This totally transparent arrangement irked my Grandma but she still wanted to go ahead because she wanted the house for my parents to live in. They still do and now the cost of the deal seems small (it can be sensible to hold an asset for 53 years!).

If we were to look at this transaction in terms of today’s financial markets, we would say that my Grandma paid a 13% spread which comprised £60 in costs charged and £200 which was the market impact of the speculator’s negotiation.

I remember my Grandma telling me that she negotiated her conveyancing costs to the ground – but some like tax and auction fees were non-negotiable.  She stressed that the £200 she paid to the speculator had originally been £300 and she’d recovered well (she never forgave herself for stopping bidding).

My Grandma stands in relation to the trade , exactly as a fund manager stands in relation to the buying and selling of an asset (a share, a property, a debt or even a derivative). She was my parent’s fiduciary meaning they entrusted her to do the deal and she used her best endeavours to do it well. That’s how it should be.

How this relates to your pension

The same factors governed my Grandma’s trade as govern the success or failure of any financial trade. There are fixed costs which are non-negotiable – (essentially tax) and the rest is up for grabs. 

If the manager of the trade is your mother and she is negotiating on your behalf, you’d expect her to care a lot not to waste your money. But if the trade is on behalf of thousands of unit-holders and there’s nobody watching or marking your performance , the incentive to get the best deal is a lot less.

In an extreme case, you might even be rewarded by the person you are trading with not to try too hard, you might get a kickback from those you pay fees to in all kinds of ways (Wimbledon tickets spring to mind). This I am afraid has gone on too long - and still goes on.

So there’s a lot of trust at stake and this business of poor or even dodgy trading is the crack in the pipe through which much of our money (and our confidence in fund management) leaks out.

How we can manage these costs

We should know better not to rely on trust, certainly with City traders and with Fund Managers. Maseratis are expensive to run.

Which is why we need three things

  1. We need fund managers to understand the cost of trading and only trade when the benefit outweighs the cost. 
  2. We need the trading of the manager to be executed brilliantly, low fixed fees, minimal market impact.
  3. We need an independent watchdog, a governance committee, to make sure that trading is appropriate and that it is properly executed.

There are other things too - we need freely available information to those overseeing the trading decisions and the quality of the execution.

We need independent watchdogs - both within the fund managers and without (trustees and IGCs) interested and informed enough to analyse the MI and assess whether the cost of trading is justified by the value the trading brings and whether value for money is being achieved in execution.

Controlling costs without tying the fund manager’s hands

This is not the same as saying there should be no trading. From time to time, assets have to be sold – if only to create the cash to pay people when they encash units. 

Indeed a cap on transaction costs is effectively a prohibition on management styles (high-frequency trading for one) which require high levels of portfolio turnover. I personally believe that high portfolio turnover is rarely a sensible strategy for long-term investors such as pension funds but I am not ruling them out of court either for myself or for others.

Why these costs need to be measured and when they need to be capped 

However, I believe that the overall cost of trading - the fixed fees, not the market impact, is within the control of fund managers, can be measured and (in certain circumstances) should be limited. Which is why we have argued that these costs be controlled, measured and limited by the wider scope of a charges cap.

The circumstance I have in mind is the default fund of a Qualifying Workplace Pension which can and should be treated as a special case, the circumstance by which people use these funds being largely that they are being opted-in under auto-enrolment and are therefore deserving of particular attention.

The attention paid to the defaults of QWPS can and should be very high. 

Firstly, there aren’t many QWPS to be managed and by definition , they only have one default investment option.

Secondly, these funds are used by 80% of investors and are likely to become very large very quickly (see the numbers enrolling)

Thirdly, while those auto-enrolled are likely to be sensible folk, they will generally not be financially sophisticated and the chances that they could spot the extra cost and therefore extra risk of a high trading, high cost fund are slim.

Rating fund manager’s cost controls

Unfortunately, the attention paid to these costs varies. I know fund managers that are scrupulous and I know others who are taking the piss. If I was to name managers who are in the latter camp, I would be in trouble.

However provides ratings for the quality of investment management from each provider which includes an assessment of these things. It cannot be definitive as we currently do not have the quality of management information available to properly assess what is going on within each fund manager. That is why we need better governance, better disclosure to fiduciaries (and consultants) and better fiduciaries  (and consultants).

The system isn’t working very well at the moment; if it was, we wouldn’t need the OFT report and its recommendations and we wouldn’t need a charge cap.


So to sum up;-

This simple analogy between my Grandmother’s purchase of my parent’s house and the fiduciary obligation of a fund manager to trade selectively and well, guides my thinking on charges. My Grandma made a mistake but she mitigated the cost of the mistake by restitution.  Fund managers make mistakes, unless they are incompetent or insouciant, they do not need to be fired. 

However, unless there is scrutiny of their activities by trustees who know what to look for, how to measure (what good looks like) and have a means of forcing things to be put right, there really is no way we can tell what is going on.

We know from decades , if not centuries of experience, that left to their own devices, the City boys will take us to the cleaners. We know that of estate agents and property speculators; we even know this to happen at car-boot sales.


Top ten expenses members pay on their funds

  1. The annual management fee - paid to your manager to run the fund and keep costs 1-9 down
  2. Stamp duty – paid to HMRC on the buying and selling of UK shares and property
  3. Comissions – paid to brokers for buying and selling assets on your behalf
  4. Research paid to brokers as an extra on the commission and charged to your fund
  5. Stock lending fees - fees paid to third parties to lend your stock out for gain (reducing the value of the stock-lending)
  6. Hedging costs - fees paid to third parties - typically custodians but sometimes currency managers to manage currency risks
  7. Waiting costs - aka “out of market” , the cost of not being invested between trades
  8. With-holding taxes – typically on overseas assets (similar to stamp duty)
  9. Performance fees – paid to managers for exceeding targets
  10. “other” costs – everything from custody to the travel expenses of the fund managers

And in case you’re not aware, ten other costs that can be charged to your fund and reduce your pension.

  1. Advisory commissions - paid to advisers for advising you on your contributions and investments
  2. Record keeping costs -  the cost of keeping records on the units you hold bought by your contributions
  3. Insurance costs –  the extra costs imposed by insurers to “wrap” funds under an insurance or reinsurance treaty
  4. Wrap costs – the costs of running the insurance wrapper and creating liquidity within it
  5. Employer support costs – relationship management and provision of auto-enrolment support (HR and payroll)
  6. Unit sales and purchases; normally providers hope to cross off sales with purchase of units but sometimes they have to physically buy and sell units.
  7. Claims; the administration of transfers, payments on death or on retirement
  8. Communications; the costs of keeping you up to date with illustrations and statements
  9. Compliance; the cost of ensuring all the above is done properly
  10. General overhead what’s left over after all this has been paid for – including the provider’s margin.

Finally, here are the five ways in which money is taken from your pension fund

  1. From the net asset value of your fund (NAV) this is known as an implicit charge as you don’t see it explicitly but it reduces performance and thus your pension.
  2. Through the Annual Management Charge AMC- that part of the Total Expense Ratio retained by the fund manager to cover its costs (paying staff, hiring premises, computers etc)
  3. Through Additional Expenses(AE); these are charged to NAV but may be linked to the AMC in which case AMC +AE =TER
  4. Through a charge on contributions; NEST make an explicit charge of 1.8% of the amount you contribute to repay a loan to the DWP taken out on policyholder’s behalves. As far as we know NEST are unique in this.
  5. Through a pounds shilling and pence periodic deduction of units from the fund ; NOW pensions do this.

These are the five charges (we know about) that directly impact on the amount a member gets in retirement.

There are other costs that impact on members indirectly, typically the costs to employers in creating and maintaining systems to manage auto-enrolment and comply with regulations , the cost of selecting a provider and ongoing monitoring of the provider’s performance. 

These costs can best be thought of as limiting the employer’s capacity to pay higher contributions into the workplace pension. 

On some occasions, these costs are born within the AMC , though this practice is frowned upon.


Posted in auto-enrolment, Bankers, brand, Farefail, Financial Education, First Actuarial, FSA, hedge funds, infrastucture, investment, London, Management, middleware, NEST | Tagged , , , , , , , , , , , , , , , , , , , | Leave a comment

It looks like we won’t get a cap on pension charges – do we need one?

Josephine Cumbo, writing in the FT, has news.

Government plans to cap charges on workplace pensions will be shelved for at least a year, dealing a blow to pensions minister Steve Webb who pursued the policy despite industry opposition.

Designed to protect millions of workers being automatically enrolled into company pensions from paying high fees, the cap on charges above 0.75 per cent was meant to be introduced in April. The reforms have now been put back until next year at the earliest, according to insiders, meaning that they may not even take place during the current parliament.(FT -Jan 16 2013)

My information backs this up. Champagne and self-congratulatory press-releases all round at the ABI. An announcement is expected early next week.

Whether the stay of execution extends to commission and active member discounts I don’t know, but the source I spoke with yesterday morning had independently corroborated information that the charge cap has been kicked into the long grass.

Apparently, the key argument for those lobbying against was that the impact of the charge would be for insurers to pass on costs of auto-enrolment to small businesses.

This of course begs two questions, what are these costs (the original Government impact assessment talked of implementation costs for small employers around £100 a head) and secondly why it’s felt these costs should e borne from the pension pots of those enrolled, a large majority of whom are on the minimum wage.

The worst case scenario is that those in Government buy the idea that it is better to have a ruinously high fund charge (and precious little resulting pension) than have employers out of pocket (in a “fragile recession”).

I can’t help wondering whether this is a blow to the restoration of confidence in private pensions or not.

In our original submission to Government, the Pension PlayPen thought long and hard about whether the OFT were right and we did not need this extra intervention. We concluded that , to stop the legacy of workplace pensions set up with high charges, a cap would be needed. But there are other ways and there is a plan B.

The focus now shifts to the ABI and the progress it is making to set its house in order. Even if the Government leaves the qualifying rules for workplace pensions alone (and ditches the whole consultation) has enough awareness been created of the damage high charges and poor charging structures do, to put workplace pensions on a better footing-organically?

If the ABI are good to their word and set about reforming many of the bad practices within workplace pensions through the Independent Governance Committees they have agreed to set up through the AMCs, we will have achieved the improvement in member outcomes without intervention. A better win.

There are two things that give me hope. Firstly, I sense the ABI have got it, at least Otto Thorenson has, I’m seeing him this afternoon to discuss a way forward for the ABI  and the IGCs on monitoring transaction costs (hidden charges) and ensuring they do not get in the way of good pensions.

I met yesterday with TISA who are hell-bent on improving the lot of those trying to aggregate disparate DC pots and I have had meetings in the past seven days with senior executives of insurers who have clearly got the message that workplace pensions are not there to keep IFAs in golf club memberships.

But lest we lose sight of the prize or the scale of the mountain to be climbed, the Pensions Institute and our intrepid pension heroes Harrison Blake, left us in no doubt. For a synopsis of their findings in “Assessing Value for Money in DC pensions” press here. The full report and press release that summarises it are here .

We may go on kidding ourselves that because the costs of  pensions are hidden and complicated and depend on people understanding the impact of compound interest , these charges don’t matter. But they do, as Harrison Blake so ably show.

Workplace Pensions are able to bring auto-enrolment into disrepute and we must not let that happen. There are many good people within Pension Providers, in the room yesterday were the CEOs of several of them. But there are still organisations that don’t get it, who think that high charges are justifiable as a means of protecting their and their distributors high charges.

They don’t realise that the world has moved on. Not only is there a new regulatory climate in which commissions and consultancy charges are  unacceptable, but there is a new means of distribution (auto-enrolment) that makes sales commissions unnecessary.

Without distribution costs a major portion of workplace pensions is avoided (which is why the cost of new workplace pensions has fallen to 0.5%). With sensible investment strategies , good execution and good governance to keep it that way, a large amount of the money previously wasted in hidden charges can be taken back off the table. With a more sensible attitude to transfers and some of the suggestions in place (from TISA and others) we can get to a point where transfer pots are easily and cheaply transitioned and with a big heave from all involved we can start moving towards better means of decumulation.

None of this needs a charge cap and if we aren’t to get one, we should not despair. The major beneficiaries of not having a charge cap are the insurers who won’t be disrupted in this m their busiest hour (see my “should we give the ABI one last chance on charges” blog ).

I’d be lying to say I was not disappointed at this news, it sounds like a humiliating climb down for Steve Webb and his “full frontal assault on charges”. Gregg McClymont will be right to accuse the DWP of incompetence in its impact assessment and of addressing this too late in a parliamentary term for a proper debate to be had. The charge cap consultation has been a major distraction and (if nothing comes of it), people will have a right to tell the DWP to get their act together.

But the world goes on; if we cannot get better pensions through intervention, we will get them through good governance and the sword of Damocles still hangs over the heads of the insurers in the guise of a referral to the Competition Commission from the OFT.

A battle may have been lost but there is still a war to be won.


Posted in leadership, pension playpen, pensions, steve webb, target date funds | Tagged , , , , , , , , , , , , , , , | 1 Comment

The best fans in the land – #ytfc

Yeovil brentford

In characteristically generous fashion, Yeovil Town  applauded the 2000 travelling Burnley fans at last week’s game at the Huish both at the ground and on twitter afterwards. They were generally acknowledged the loudest we’ve had all season and we are grateful for the receipts they brought the club.

Burnley have a lot in common with us, a poor place with a strong fan base rooted in the town and speaking for a certain demographic.

Talking with them before the game, I got none of the ingrained animosity you get from your average Leeds or Forest fan, these guys have thirty years of failure to support them and they see the glass today as half full.

How different from the howling vitriol you get when you watch a Chelsea, Aresenal or Tottenham.

It is a pleasure to support Yeovil Town, Though I was borne and bred 20 miles from the ground, I seldom saw them in my youth, preferring the league games at Bournemouth and sometimes Southampton.

I started supporting Yeovil some ten years ago as they entered the league so have no claims to being Yeovil True (yet).

Yeovil cling to their heritage as a non-league side and the chants of “are you Weymouth in disguise” to the Burnley fans , must have mystified all but the die-hard Glovers! (Weymouth and Burnley play in Claret and Blue and if West Ham or Villa go down this season -( possible) and we stay up (less so) then we’ll be singing the same to them.

So who are the best fans in the land. Well ours of course! Cos Somerset is Wonderful!

For my son to give up his childhood love of glory boys Chelsea and follow the Yeovil over land and sea (and we’ve had to brave some sea over the past two weeks) is a defining decision in his young adult life.

It means stuff to stand in the Blackthorn and see him nearly cry with Joy when Kieffer Moore scores at the home end (twice in two games). To hear the fans around  us sing to Luke Ayling and Byron Webster, you’d think they were mates. And in many case you’d be right. Yeovil is that kind of club.

So though I’m Henry come lately, I am proud to be a Glover, proud that my family have deserted the Russian owned Bournemouth for a club that is properly financed ,properly managed and properly supported.

And we’ve got the best song in the land too!

Posted in Yeovil Town | Tagged , , , , , , , , , , | 6 Comments

Can TISA hit out on pension transfers.

Sussex v Surrey - LV County Championship

Compare and contrast…


Comment one

3 months isn’t bad even for an IFA transferring pensions. Some providers are notoriously bad for processing transfers.

I used to work in life company as a broker consultant and I could list each company that always made new hoops to jumps through for transfers.

IFAs would be screaming at me why its not happened and it always had to do with the ceding scheme.




Comment two

Re-registration allows you to move investments you already hold from one setting, such as with a stockbroker or investment platform to another setting, or service.

This simply involves changing the name of the shareholder on the register of holders to reflect the new setting.

If you decide to re-register to a  product wrapper, such as an ISA or General Investment Account (GIA), when the process is complete the investments will be held on your behalf in safe custody by us.

As investments are not sold and re-invested they are never out of the market, and as such you will not miss out on any gains (or losses) that may have been made. 


The first comment is made on my earlier blog by K Smith and reflects the resignation of those IFAs , pension managers and consumers to the lot of those trying to aggregate their pension pots – get the pots to follow the member.

The second comment is taken from the website of Novia, a funds platform which like its peers takes the free-flow of money from one “setting” to another as something to be proud of.

I was beginning to despair. The insurance company I am transferring money to has at last accepted that they need to be a part of the problem and are treating me as a special case. Because I am an introducer and known to them, I get some service. But that does not bode well for others, I have simply jumped the queue.

There are three issues that continually crop in conversations with the insurer.

  1. Customers need to be protected from mis-selling; this is hardly surprising, insurance companies are still paying for the cost of restitution for the pension mis-selling problems of the 80s and 90s, they are now embroiled in pension liberation.
  2. There are within insurance products, hidden guarantees that must be retained.
  3. Ceding schemes are reluctant to make payments for commercial reasons.

I have seen no evidence of deliberate obstruction from ceding schemes but this may be still to come. The problems seem to be with points one and two, but I would add a fourth.

While the fund industry (operating on non-insured platforms) has got its act together, the insurance industry has failed to do so.

I decided to take some time out and find how these fund platforms had generated change. I found this press release from an organisation called TISA .

It turns out that TISA is a group of senior executives from the funds platforms supported by fund managers and various IT groups. I don’t know these people but I feel I should as they clearly adopt a “can do” attitude to problem solving.

I have seen another initiative of this kind in recent times, The Idea group, sponsored by LGIM have created data standards that now allow SWIFT messaging , rather than faxes, to activate the transfer of money from one fund manager to another.

What have the TISA and Idea initiatives got in common, they both appear to be technology led and driven by a few individuals who realise change can only come from the top and needs energy and nerve.

I do not think the insurance industry capable of moving forward in this way. They have an abundance of committees and, in Origo, an organisation that is supposed to sort these problems. Google Origo and the first ten items relate to making life easier for advisers to get agencies with insurance companies. It is as if the policy-holder does not exist.

But sooner or later the insurance industry will have to deal directly with customers. The vast majority of the British Public have made it clear they are not prepared to pay large commissions to complete a few forms, nor will they pay equivalent fees.

There are very simple solutions that can be adopted by the life companies that , were they in listening mode, I could get them to implement tomorrow.

  1. If a ceding scheme considers there is a guarantee to be given up in the transfer, they should make this clear by a simple means -such as an unexploded bomb, Scorpion or simply writing on red paper.
  2. Unless the transfer value has such a warning, then the transfer is in a safe harbour and should proceed.
  3. If the transfer is potentially toxic, then it should be referred either to an adviser or to a representative of the ceding insurance company.
  4. If following the conversation , the investor insists on moving the money anyway, that has to happen. But for both the ceding and receiving scheme, the transfer is now in a safe harbour, neither should be liable for retrospective litigation from the transferrer.

Which begs the question, who is paying for the advice. I would say that in 90% of occasions, the advice has already been paid for by the transferrer in initial or recurring commission. If the original adviser is no longer in place, then whoever has taken over the agency of the policy is now responsible (and that might be the insurer). Insurers who issued agency agreements to advisers who walked away from their obligations have to accept that the agency agreement reverts to them.

Where no advice has been given at the point of sale and a guarantee is in place (a tiny fraction of transfers), then the obligation is on the individual to either take advice or sign a waiver of liability.

These simple measures are not hard to put in place, they would take weeks.

They do not of course deal with the problems of buying and selling units which are still necessary for the insurance industry (but not for fund platforms). These issues will take more work.

But if the insurance industry was to take a proactive position, as TISA did with re-registration and as Origo have failed to do (obsessed as they are with helping IFAs but not customers), then we might have a platform for the free flow of money from pot to pot.

Conversations I have had in the past week suggest that there are one or two very senior people in the UK life insurance industry who do want to get to grips with this problem and are prepared to take positive steps. It sounds as if they will even be talking with people like me to make change happen.

So I am a little happy, despite another two weeks going by and no more money transferring to my new personal pension!

Who knows, we might even have pot follows member one day.





Posted in advice gap, corporate governance, customer service, investment, pension playpen | Tagged , , , , , , | Leave a comment

The value of the triple-lock,


There can be no better news for those in or approaching retirement than David Cameron’s election pledge yesterday to keep the triple lock on the Basic State Pension.

He promised pensions would continue to rise in line with wages, prices, or by 2.5% – whichever is highest – during the 2015-2020 parliamentary term.

Indeed Cameron stated that protecting pensions was the “first plank of the next general election manifesto”

The triple lock was introduced by the coalition and means that, since 2010, many pensions have risen by about £15 per week overall. Chancellor George Osborne announced in his Autumn Statement that the state pension age would increase to 68 in the mid – 2030s and to 69 in the late 2040s.

To give you an idea of the value of this increase, let’s do a little Maths. £15 pw is £480 pa. To provide the promise of a fully indexed pension at today’s state retirement age would cost (should you purchase an annuity) around £14,000.

But that promise hasn’t just been made to those in retirement, it has been made to every one of us too young to receive a basic state pension as those increases are now baked in to our entitlements.

And lest anyone have a go at Cameron for being a toffee nosed Etonian smug git(which he is), let’s remember that the £15 pw represents a huge benefit to those on low retirement incomes. At a time when the average DC pot at retirement is £28,000, the increase (not the pension itself) is worth half of Joe or Joan Blogg’s personal pension savings.

Frankly the benefit of what Cameron’s saying should outweigh any personal prejudices (and living in Eton as I do, I have a few!).

The basic state pension is a universal benefit (we all share in it) but it’s the benefit that matters most to those on welfare, those who could not save and those for whom their pension savings, for whatever reason, have failed them.

No doubt, as I type, Michael Johnson is locked in his (ivory) tower, working out just what the cost to the Treasury of this promise would be. I have here to take my hat off to Michael in his campaign for a superior state pension. I suspect that though he claims to have nothing to do with Cameron’s decision making, his (benign) influence is at work here. One day, Con Keating , Kevin Wesbroom and I will kidnap Michael and re-educate him, I suspect there is a decent man lurking beneath his wolf’s clothing.

I am really thrilled by this promise. No doubt it will spark concern in Labour and Liberal party think-tanks, but it seems a no-brainer to me for Webb and McClymont to confirm their support for the triple-lock.

The Basic State Pension was marginalised by successive Governments for thirty years, from the start of the Thatcher era to the administration of Gordon Brown. It was allowed to fall behind the cost of living for pensioners till it had reached a level that Michael Portillo could dismiss it as “nugatory”.

And yet it is at the heart of the benefit system brought in by Beveridge and one of the few certainties that people enjoy in retirement (death and taxes being the others that spring to mind).

Pound for pound , the basic state pension is the most efficient way of paying a retirement income we know of. The apparatus needed to pay or to claim works well and politically it is a benefit that brings the nation together. What is there not to like about the basic state pension?

That we are restoring it to its rightful place as the bedrock of our retirement benefits is impotent too to second tier pensions- those we receive from the workplace. The guarantee of a state benefit worth having, allows us to think of our workplace savings as investments. A strong state pension paid to a level that provides us all with the certainty of self-sufficiency, is something we can aspire to. If it provides us with the comfort that we will be spared destitution, perhaps it will also inspire us to be more ambitious with the management of our voluntary savings.

No doubt there will be many commentators who will sneer at this promise of Cameron’s. I will not be one of them.

Posted in actuaries, governance, pensions, Retirement | Tagged , , , , , , , , , , , , , | 1 Comment

Pot follows member – not around here it doesn’t!

liberation fraud

I took a look at this scorpion and decided enough was enough, I told myself…

I’m going to liberate my personal pensions and section 32 policies from high charges, poor fund management and non-existent governance into my new plan which has low charges, good governance and excellent investments.

Here is how it’s gone so far….

In October I decided to get my act together and review my pension plans. I have eight private arrangements. I have an occupational DB plan that’s staying put and it has money purchase AVCs with guaranteed annuity rates – these are going nowhere.

I had benefits under a former employers occupational plan which under investigation now turn out to be in a section 32 policy with an insurer.

I have two 226 policy with  negligible transfer values that barely match contributions paid between 1985 and 1988.

I have two personal pensions (one for contracting out) and a stakeholder pension.

I investigated the plans. I checked the charges, the transfer values, the funds and the governance – with the exception of the section 32, all were shocking. I decided to transfer all thse pension plans into my latest employer funded GPP and requested the paperwork.

Having completed all the forms for both ceding and receiving schemes for the six transferring schemes , I sat back and waited ……and waited ….and waited.

At the point of writing (nearly three months later)  one out of five transfers has completed. The other five  transfers are stuck  in the pipeline.

I had sent details of my fund holdings from my current providers to my new scheme but that is not enough, it turns out I have to give them  “benefit statements” as well. Well the benefit statements (which are produced at scheme anniversary) are not in my possession and that is because I have moved house several times over the years and the statements are  in someone else’s wastepaper bin!

Today I contacted the customer service team at the receiving scheme and asked them to use the letters of authority I’d sent them to contact the ceding schemes to get copies of these statements.

This exchange followed.

Provider “I’m sorry sir, we cannot act on your instructions”

Me; “But I am the customer”

Provider; “That is irrelevant”

To cut a long story short, if I was an adviser there would be no problem but as a customer I am irrelevant.

Personal Pensions were set up to be portable, you are supposed to transfer them from provider to provider without cost and without hassle. That’s what it said on the packet. The reality is that it is now nearly as hard to convince a personal pension provider to accept a transfer value from another personal pension provider as it is from a defined benefit scheme.

The sums involved (to me) are significant, they represent a large proportion of my savings. But I have no control of my money and am treated as a financial self-harmer!

Incidentally the only transfer that has gone through was so ineffeciently processed that I was “out of the market” for nine days (at a cost to me of £2,250 in lost investment returns – so much for electronic trading).

The obvious option is to hand over everything to an IFA and pay a hefty sum to get them to do the administration for me. Whether they’d get the same obstacles as I have I do not know but presumably they’d be consider relevant. 

But that’s not the point. I object to paying someone to do something on my behalf that I’m qualified to do myself, (I have the advanced financial planning certificate in a cupboard somewhere!)

If it is as difficult as this for me, what must it be like for others?

For all of the talk of pot following members, my experience suggests that there are such headwinds against the member transferring personal pension pots that the term “personal” should be struck off by trade descriptions. These pots belong to the advisers for whom they are a source of trail commission , to the fund managers who have carte blanche to deduct what they like from the Net Asset Value of my units and to the providers who consider my status as customer “irrelevant”.

Mr Webb, before we get ahead of ourselves in requiring automated transfers in the future, can we do something about easing the gridlock of the past?

It strikes me that I’m a victim of “pension captivity” fraud

Posted in advice gap, annuity, pensions | Tagged , | 5 Comments

Pension tracking mortgages – a new idea from Josh Collins

Josh Collins

Josh Collins

This article has been sent me by Josh Collins who describes himself on Linked In as  an “Aspiring pensions consultant, interested in improving the UK’s standard of living. Particular interests in: pensions, the care system (child and elderly), the NHS, homelessness and housing, realistic alternative energies and energy poverty”

Currently, he’s studying for an MEng in Mechanical Engineering at the University of Bolton. I don’t know much about the circumstances of the homelessness that Josh suffered as a child but he tells us it’s what’s driving him.

His idea is radical but it makes sense. Had this come from  from Politas or the IPPR, it would have made national news. That it came from someone in his early twenties should give it more (not less) credence. Ignore this man at your peril!

” Different to pension linked mortgages. These mortgages would vary depending on the client’s contributions (not the pension performance). If the client has contributed a reasonable amount then the interest rate would drop, if not then it would rise.

The idea is to reward regular and early investment in pensions.

A lot of young people feel like they need to save for a house/car/family before they invest in pensions, this scheme would encourage young people to consider these investments together, alongside pensions and not before.

The interest rate drop could be covered through government funding or it could be covered through the tax free element of pension contributions in a similar way to how pension linked mortgages are.

Another way may be to keep the interest the same, but to allow a portion of the payments to be taken out of an employee’s salary before tax.

A significant benefit of linking pensions and mortgages in this way is that the information would need to be regularly updated and it would give mortgage and pension holders an idea on how much is considered to be enough of a contribution to support their lifestyle.

There are a lot of products available that allow clients to track mortgages in a way that they currently can’t track their pensions and rather than developing new apps it could be possible to develop existing ones to display pension performance, this would mean that clients only have to look in a single place as opposed to scattering information which could be difficult to keep track of.

By regularly tracking their pension, there would be a reduced likeliness of policy holders reaching the maturity of their pension and finding that what’s been accrued doesn’t meet their needs, which is a particular concern with the current pension linked mortgage system.

More developed systems could tailor targets to individual needs, clients could be asked what kind of income/lifestyle they’re hoping for during their retirement, from which a pension pot value, alongside contributions needed to meet that target could be estimated.

If a customer meets those targets, then their interest rate would drop, if not then it would rise, the kind of scale that the interest would rise and fall and whether it would vary in stages would be up to the provider.

While auto-enrolment has seen an increasing number of young people contribute to their pensions, there is now a risk of complacency. Young people may feel that what they are currently saving will be enough to maintain a certain lifestyle, but may find that that isn’t the case upon maturity.

Despite the fact that the average age of first time buyers is currently 35, this may serve as a beneficial refresher course in pensions for many people.

It could be argued that the positive response to auto-enrolment by employees (for example, ASDA has claimed around 90% retention of auto-enrolled colleagues) is actually an indication that many individuals are interested in saving for a pension, but don’t understand what it involves.

Auto-enrolling employees has ensured that a substantial amount of individuals are saving in some way for retirement, but they may be disappointed with what they receive upon maturity. By discussing an individual’s targets further down the line (such as at 35), it would be possible to allow the individual to understand if they are on track and allow them to adjust their contributions accordingly.

The typical first time home buyer is 35 and this is arguably a good age to discuss this issue, it would be late enough to assume that the majority of applicants have already initiated a pension plan, but not so late that any adjustments would need to be financially crippling.

While many employers discuss pension plans with employees in the early stages of work based pensions, some might not revisit the topic once a plan has been begun and so employees may appreciate this approach.

Others might have chosen to forgo work based pensions altogether in favour of private schemes. Either way, pension holders might feel the benefit of receiving a second opinion and review of performance. The schemes would be run by private standard mortgage providers and it would be their decision as to whether or not they involve themselves.

Finally, the scheme could be designed as a preventative measure against the potential housing bubble caused by the help to buy scheme.

Mortgages could be assessed before the adjustments were made for the pension contributions, meaning that borrowers would be assessed on the ability to pay back a higher value than would be expected, which would provide for a larger security margin which would cover the increase in payments which will likely occur at times throughout the lifetime of the loan.

Once the adjustment is made, borrowers will likely find that their payments are more than manageable. The leftover money would be there for the borrower to spend as they wish- meaning more money spread throughout the economy.”

This article first appeared at

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Beyond compliance…how to integrate your workplace pension into your business

Beyond compliance

What is your organisation trying to get out of auto-enrolment?

The answer will be as diverse as our business strategies! If we had to generalise, we at First Actuarial would chuck all the answers into two buckets;

Bucket One is a risk bucket and contains answers like

  • No fines from the Regulator
  • Minimum disruption to payroll and HR
  • Minimum disruption to productivity
  • Minimal cost

Bucket two is a reward bucket and contains answers like

  • Happy staff
  • Better productivity
  • Improved retention/reward
  • Predictable “at retirement” strategy

Auto-enrolment success has to embrace both sets of answers and carry the votes of the HRD and CFO. When Diary Crest modelled their contributions, they assumed a 25% opt-out rate, they achieved an excellent 10% but while they got cheers from the DWP, was finance happy? And what did this mean to the price of milk?

Being prepared for auto-enrolment is just good business sense. How you prepare is down to you and your business. Hard and fast rules about starting at least a year from staging take no account of the dynamics of an employer. We have seen small businesses absorb auto-enrolment into their infrastructure as if it were BAU. We have seen large a large business sink over £1m into auto-enrolment preparedness and not recover a fraction of the ROI.

Our experience as a pension’s consultancy is to get the strategy in place early (typically six months before staging) and allow steps two to ten to follow naturally. The key is to get everyone on side early on and to empower people within your business rather than relying on external consultants. The more you can do yourself, (and the less you outsource) the easier workplace pensions will be going forward.


So here are the ten steps


The first step to auto-enrolment success is to know what success looks like. Without a clear strategy you will have no measure of achievement.

step two

The second step is to get all parties bought into the strategy and the task of delivering on it. You know your business, you know who matters and you know there are no short-cuts.

step three

The third step is to buy-in payroll. Start by assessing your workforce and model a contribution structure that is right for your business. .  The buy-in of payroll is a pre-cursor to another discussion. You need to understand your payroll capabilities and build your strategy around what payroll can do.

step four

The fourth step is to buy in the Regulator- a lot easier than it sounds. The Pensions Regulator has a great website

step five

The fifth step is to make sure your pension qualifies for auto-enrolment. If you have an existing pension plan you need to be talking with your provider to ensure it can be used for auto-enrolment.

step six

The sixth step is to make sure you have the best pension for your staff. If you don’t have a plan, you can start from scratch, if you do, now is the time to review it against the opposition

step seven

The seventh step is to contract with a provider and make absolutely sure that you are on the same page; you need a joint implementation strategy.

step eight

The eighth stage is to tell your staff exactly what is going on. This means being clear not just about auto-enrolment but about the decision about the pension.


step nine

The ninth stage is to implement clinically. The rules surrounding the payment of contributions and the statutory communications to staff are tough but they are fair- follow them.

step 10

The tenth stage is to celebrate what you have done. Whether you like it or not, your organisation is committed to substantial payments into workplace pensions from staging on. The pension contribution is part of pay- make sure it’s valued.

 Beyond compliance…

Your workplace pension needs to comply but it also needs to be a part of your organisation’s reward strategy. Since the budget, there has been a sea-change in people’s attitude to their pension. In short they now “own” their pot and you can expect to see a lot more interest in the investment aspects of auto-enrolment than before.

There is currently considerable capacity in the market and employer’s staging today have considerable choice of workplace pensions. But as the Office of Fair Trading has pointed out, most employers are badly placed to making choices without advice and advice on pension choice is hard to find and far from cheap.

We recommend to you, a free service to employers and advisers which gives access to all the leading pension providers and allows employers to compare and choose the workplace pension that is right for them.


This article first appeared in

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What to do at Easter?

Easter’s here and while many of us will be well planned , some will have had plans fall through and some- well let’s just say “we’re fluid!”.


If you’re fluid and are looking for something to do with yourself/your family and/or your loved ones, then we are looking for fun-loving crew for Lady Lucy, our 8 berth cabin cruiser built our os sturdy mahogany in 1946 and the pride of the Middle Reaches of the Thames, if you want to see the craft- check


From Friday evening to Monday evening - the boat will be making its way up river to Goring and Streatley and back stopping over at Sonning on the way. 


So if you are able to get by train or car to Maidenhead or beyond and fancy a day on the river, please sign up at  You can do a day or a weekend, stay over on Friday,Saturday or Sunday or simply use the excellent road and rail links to organise your day out to fit you and your folks!

henley plus plus 257

If you have any questions ,get in touch with Henry Tapper either on linked in or at

Lady lucy bank h 076

Over the past seven years we have had several hundred guests on the boat. There is no charge at all and all we ask is you bring some food and or/wine to help out with provisioning.


The next London Lunch is not until 12th May as the first Monday of the month is a bank holiday.

Lady lucy bank h 003

Remember to sign up to the Golf Day and Put the Henley dates 2nd- 6th July in your diary. Windsor racing starts soon and as always, Pension PlayPen will be nipping out after work on Monday evenings for a little flutter!

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“Agency has its advantages”; using Pension PlayPen with your clients

hi res playpen

What’s this all about?

In 2014, Pension PlayPen wants to build a network of 1000 agents – people and organisations wanting to use our Choose A Pension Service to help their clients get a good workplace pension in advance of auto-enrolment.

If you’re a Pension Playpen agent, you’re protecting yourself and your clients.  

This guide looks at how Pension PlayPen compliance works

Why do we need Pension PlayPen?

Getting auto-enrolment right is more than a payroll issue. While staging gives employers an acute problem establishing the processes needed to stay on the right side of the Regulator, the workplace pension into which contributions are paid, is a longer term headache!

As the DWP’s Command Paper puts it

The biggest test for automatic enrolment is yet to come, as large numbers of small employers reach their staging dates later this year. It is vital for the Government to ensure that people are saving into high quality, value for money schemes and that all individuals, irrespective of their employer and their choice of scheme, can have confidence in their private pension saving

Pension PlayPen is the only on-line source for workplace pensions that allows you and your clients to choose the right workplace pension.

What  is the Regulatory status of the Pension PlayPen?

Pension PlayPen Ltd is a company that runs Pension PlayPen is not a regulated adviser but it takes advice from First Actuarial which is authorised through the permissions of the Institute and Faculty of Actuaries.

While the process of choosing a workplace pension is not deemed a regulated activity by the Financial Conduct Agency (FCA) , much of the investment advice within the Pension PlayPen would, were it offered to individuals, need to be authorised

So we at Pension PlayPen take compliance very seriously and are keen to point out, whenever we get the chance, that our Choose a Pension (CAP) service, is there to help employers purchasing on behalf of the staff and not to give individuals advice about what they should do with their own finances.

What do we mean by agency?

There are two kinds of customer using Pension PlayPen, there are employers doing the selection of a workplace pension for themselves and their are advisers doing it for their clients. We call those who act for employers “agents”. Agents get an agency agreement with Pension PlayPen, a copy of this agreement (which is very simple) is available on request  from .

The chief advantage of registering as an agent is that it makes sure , should anyone question the decision , that you have access to all information that went into the decision. By being an agent, you can demonstrate that you followed a due process certified by First Actuarial as compliant with their professional standards.

Who’s Pension PlayPen Agency for?

This service is designed for:

•Financial Advisers



•Payroll Bureau

•HR Project Managers

•and other professionals helping SME’s with Auto-enrolment

What are its main features?

Using a Pension PlayPen agency you can

Create multiple enquiries for different clients

•Dedicated dashboard to manage enquiries

•Receive dedicated quotes for clients from providers

•Bulk discounts

•Latest news tailored to your services

A word of warning! You must download our output report!

Pension PlayPen and its advisers First Actuarial, can only take responsibility for the Process which has been followed, if the Output Report, featured at the end of CAP, is downloaded. The cost of downloading this report is £499 (plus vat).

Your client is free to Choose a Pension without the report but you are “on your own” if push comes to shove.

“The Pension PlayPen output report is the vital compliance document for any agent” -Mark Riches; Founder First Actuarial.

What goes into the report?

Each report is particular to the client and provides a unique audit trail of the decision process taken to select a provider.Specifically it details

  • Everything you have entered into the CAP , including your workforce assessment, the cash-flow forecasts for your contributions over the years to come and your capabilities to interact with your provider digitally.
  • All the offers made to you by the providers on CAP
  • Fact sheets on the providers offered you on CAP
  • Your balanced scorecard, including the weightings you chose
  • The basis of the decision you have taken IN YOUR OWN WORDS

CAP will only allow you to make the selection after you have properly followed the process. So First Actuarial are comfortable to issue a certificate, once a selection has been taken, which forms part of the package purchased by employers as the Output Report.

Why is the report a compliance document?

Not all workplace pensions  qualify to be “auto-enrolment workplace pensions” . The technical term for compliant pensions is a “Qualifying Workplace Pension Scheme” (QWPS).

Any workplace pension purchased after using CAP will be a QWPS. CAP only features offers made by Providers which meet the minimum qualifying standards laid down by the DWP in current legislation. Pension PlayPen has also been involved in the consultation on future regulation laid out in the DWP’s Command Paper.

At the moment,to Qualify, the workplace pension has only to have a default investment fund and be capable of working with auto-enrolment. But from 2015 it must not have charges on the default exceeding 0.75% and must have minimum standards of governance in place which are much tighter than today’s. The rules get tougher still in 2016 when no commission can be payable to third parties from member’s funds and no group of members can be favoured over another (Active Member Discounts).

First Actuarial will be monitoring each provider to ensure that you do not get offered an un compliant scheme. 

But neither Pension PlayPen or First Actuarial can certify that your purchasing decision was compliant unless the report is downloaded. The report is , in relation to the workplace pension, your compliance certificate.

What else is important about the report?

Pension contributions form a part of overall pay (some call it total reward). Increasingly people will come to rely on their workplace pension as a means of having deferred income in retirement. 

People will become more aware of the value of a good workplace pension over time, less happy with sub-standard pensions.

In extreme cases people will complain about pensions and ask questions about how they came to be “put” in what they see as an unsatisfactory arrangement. Your report is your insurance against this happening.

People move on and the knowledge of the decisions taken today may be lost. The Report properly documents the decision and ensures that your company is future-proofed against investigations from employees, auditors,regulators, staff representative or other bodies such as the press.

So we see the payment for the download as an important legal safeguard for your company, similar to the due diligence documents you would expect to pay for in purchasing any other major item (a lease, a freehold, major plant and machinery etc).

To wrap up

To make it simple to explain your role and the role of the Output report, we finish with the five key benefits of becoming an agent.

Five reasons to become a Pension PlayPen Agent

  1. It puts you in control of the decision your client takes (aiding in retention and expansion of client base)
  2. It puts your relationship with your client on a properly defined basis that is future-proofed.
  3. When as agent you ensure you client uses the Pension PlayPen output report, you and your client have a proper audit trail demonstrating you have used due diligence in selecting your pension.
  4. Your are helping your client and their staff to a good workplace pension and better retirement outcomes
  5. Agency gives you a number of operational benefits in using the CAP service

What do do next.

If you are interested in becoming an agent for the Pension PlayPen, please drop a line to to discuss.

Alternatively you can register on line at 

hi res playpen

Posted in accountants, advice gap, dc pensions, pension playpen, pensions | Tagged , , | Leave a comment

It’s a phoney war- what’s happening on the other side of the Channel?

accounting web

I am still surprised how people are organising themselves to do their jobs.

You’d have thought that the accountants and book-keepers who provide financial stability, get people paid and manage the tax affairs of Britain’s 1.25m employers would be the last people to mobilise on social media. But in fact they were among the first, thanks to the visionary people at Accounting Web; an organisation that provides a backstage pass to anyone interested in the grunt of running a small business.

They are MoneySavingExpert for the small and medium sized enterprise, albeit they haven’t quite found their Martin Lewis (yet)!

Their model is not pure journalism, it’s a social media model that reaches out to best practice and through a strict process of quality control, edits contents for its 500,000 regular readers.

Speaking with Andy North and Ben Smith, the enthusiastic editorial team of the website, it’s not hard to understand how the business has grown from a small-time mailing outfit to the maven that it is. When it comes to the big issues for small employers, RTI, VAT, payroll , accounts filing and PAYE, these guys extract literally thousands of comments from their membership. In this vibrant febrile world “questions and answers” are conducted by the people doing the work- not regulators or consultants. Everything is about individual experiences, mini case studies which build understanding in a way that printed media simply cannot.


I went down to Baldwin Street in Bristol to visit parent company Sift Media (they do similar work for HR people). Round the back of Baldwin Street in St Nicholas is a Bohemian covered market and some great cafes. John Cabot used to go to Church round here before pushing off round the world- his web was slower but something of the excitement lingers!


What surprised me is that amidst all this industrious bustle, auto-enrolment is hardly mentioned, the odd thread here or there about payroll compliance but no systemic engagement. I asked Ben why this was, he told me that most small employers are and their advisers are still learning RTI (not particularly successfully by the sounds of it). Staging auto-enrolment and setting up auto-enrolment are the other side of the hill.

We discussed how to get early engagement and the answer came loud and clear, there is simply no-one interested; a search on pensions suggests plenty of posts but little comment. Ben thinks this comes down to leadership, there is no presence on the site from the Pension Regulator. Press on related tags and there is nothing


Private firms are little better represented. The only Pension Firm that I could spot making an effort were ITM who have set up a company page complete with their blogs and tweets to promote their auto-enrolment solution EASE. Good for ITM and Guy Ridley, their forward thinking MD.

So while those who are managing the grunt for the vast majority of employers in this country, go about their work, it appears that the pension industry is on another planet! This reminds me of how it was with the payroll software companies and large payroll teams in 2012. The roaring silence that surrounded the introduction of auto-enrolment in the summer of that year was akin to the phony war before the Battle of Britain.

I have a nasty feeling that while we pensions folk talk among ourselves, the real problems are stacking up on the other side of the Channel!


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The Pension Play Pen lunch gives a thumbs up for the new Annuity Framework

Play Pen

A victim of Osborne’s success

We were a victim of George’s success on Monday (7th April) as nearly 40 of us spilled out of the gallery room and occupied most of the Counting House’s second floor! Handing over £500 in cash I wondered whether I would have to fill in a money laundering form when paying the bill.

A capacity crunch

Such a large turn out for a discussion on “can we be trusted to manage our finances in later life”, would have been unthinkable on March 7th. Such is the impact of Osborne’s budget proposals that as well as the 38 of us who made it, I had 17 apologies on the day (and these were people who really wanted to come!).

The format of the lunch, a 50 minute discussion, topped by a pint, tailed by a pie, allows everyone to have their say and I’m pleased to say everyone did. I have never seen such uninhibited discussion, such laughter and so much consideration and concision in what was said.

32 for ; 6 against

Events like this come rarely and are to be treasured. For the record 32 hands showed confidence that we could manage our new found freedoms and 6 showed against.

The six who voted against (and one had to be mine- as devil’s advocate) were expressing a caution that the infrastructure of guidance and the full range of choice is yet to be set in place.

Product development must focus on the squeezed middle

My view is that the market reforms to the needs of its customers. The pre 2015 at retirement options clearly do not meet the need of middle England and one of the themes of the debate was that here was an opportunity for us to find an acceptable alternative to those squeezed between state dependency and wealth management, those neither wealthy nor poor, those looking for average solutions.

The guidance guarantee must not be a token gesture

Another theme was the importance of making the Guidance Guarantee more than a token gesture. Many spoke of how new technologies could be applied to deliver. When I was last at TPAS, I watched a video call being conducted by a 60 year old adviser and someone on their mobile phone. This gave me hope

A third theme was how relaxed people seemed about the impact of the changes on DB plans. “Let the ropes fly” seemed to be the message from the actuaries, regulators, investment consultants and trustees in the room. Whether we see mass migration to the sunny uplands of this brave new world or people stick with the guarantees within their existing schemes remain to be seen. A cynic would argue that employers could be looking at the de-risking opportunity that disenfranchises millions, we seemed to see this as the opportunity to opt-out of security.

Of course such sessions are not representative, but having been now to 52 if the 53 consecutive monthly  lunches since November 2009, I have never seen so much excitement, such eagerness to make things work and such a brash and bold vigour among us.

We have a mammoth task ahead of us , but the message of the Pension Playpen lunch group which should echo in Canary Wharf, Brighton and Whitehall is this.

“We’re up for it”.


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giddy diversity

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