Three old farts on DC regulation











John Reeve, whose previous comments on DC I have dismissed as the “wittering of an out of touch actuary”, has written a telling comment on mallowstreet. I’m sure he won’t mind me re-publishing it here.

Last week the Pensions Regulator issued his Annual Report along with a summary document (there is a comment here on the attention span that most of us now have for his 152 page documents) . In this he admitted to missing two of his key KPIs on DC Governance.

Frighteningly only 12% of employers surveyed (52% of advisors) were aware of the Regulators 6 principles (target 60%, 90% of advisors). Whilst the way this was measured means that this is smaller employers it is a major failing. In addition 61% (target 75%) of large schemes met 80% of the quality features. For small schemes this falls to 42% (target 50%).

Should we be worried about this?

I think we should. Whatever you think about the DC Principles and Quality Features they are here to stay and the Regulator has set his stool out to see them adopted. With the focus more than ever on DC through AE we can expect the focus of the Regulator to come down even harder on ensuring that these principles and features are met.

Am I alone in fearing that compliance may come at the cost of common sense with Trustees and GPP Governance Committees being forced to focus on jumping through the Regulators hoops rather than focus on the matters that are really important to their members?


I do have some thoughts….

There are two divisions of the Regulator whose work involves DC pensions but you wouldn’t know they worked in the same building.

The Auto-enrolment division concern themselves with the struggle to herd 1.2m cats in an orderly fashion through stages while the DC team struggle on with the 6 principles and the 31 (or is it 32) quality features.

I work with employers with 10-50 employers and I doubt that more than 1% have even heard of let alone care about complying with these principles and features. From now on , all that they are interested in will be that the provider takes care of that for them. Governance is a matter for the Trustees and IGCs.

I see absolutely no impulsion on employers to provide governance for their staff, PQM is totally irrelevant to smaller employers.

What will be interesting is to see for how long the larger companies continue to invest in “own-scheme governance”. My guess is that once commission ,AMDs and swanky defaults are removed, we won’t be seeing much pensions advice from independent advisers and increasingly the responsibility for governance will revert to the provider.

Like it or not, advisers will struggle to add value necessary to command fees equivalent to the commissions they are currently taking.

Increasingly the Regulator will concentrate on the regulation of the handful of master trusts receiving substantial inflows from AE staging ,the small number of occupational DC schemes used as qualifying schemes and the much larger number of derelict occupational DC schemes which still manage a large amount of DC money- but with very variable standards.

IMO- the Principles and  Quality Features are weak and unenforceable, the Pension Regulator should concentrate on enforcing  the Further Measures for Savers in this year’s DWP paper.

The vast majority of the 40,000 own occ DC schemes on tPRs books would be best transferred to well run master trusts using bulk switching. This will leave the hybrid plans with underpins which are properly DB and the DC sections of DB plans and the high quality DC plans which embrace good governance.

I haven’t read the Pension Regulator’s strategy document and will do now.

If Andrew Warwick-Thompson is reading this, please give some serious thought to the budget reforms and ensuring that occupational schemes do a little better at retirement than they have over the past ten years,

The real failure in DC country has been in decumulation not in accumulation, something that was flagged by Roger Urwin and others back in the 90s as inevitable.

In the context of the failures in decumulation, enforcement of the Quality Features looks a red herring!



I have now read the Pension Regulator’s Annual Report and Accounts from which John quotes.

I’m not qualified to comment on DB , my comments on DC remain unchanged but I’d give a triple tick to the Regulators part in the participation in auto-enrolment.

Most of the 152% take up in the use of tPRs website is attributable to SMEs using their well put together AE website.

I’d like to see the promotion and enforcement of the  Minimum Quality Standards at the centre of the DWP’s DC work.

Most importantly, we need to get the 1m employers still to stage auto-enrolment making smart choices on behalf of their staff and not trying to bodge failing schemes into QWPS.

Of the 13,000 employers who’ve staged- let’s make it a 2015 and 2016 KPI that 100% of these schemes meet the Minimum Quality Standards!

That’s not to say we shouldn’t be doing great things to improve DC among the NAPF membership as well but these properly advised schemes probably need less attention.


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“Who’s the we?” – a blog about advice and guidance

It's better when we do it together

It’s better when we do it together

On Sunday I wrote a blog about the ten things I wanted to see in the Government’s response to the Consultation it’s been running following the retirement reforms announced in the budget. You can read it here.

As we’re ten out of ten, we’re pretty happy with the decisions taken, but the announcements haven’t been universally welcomed. Witness this exchange

Several tweeps picked up on Pension Champ (Alan Higham’s) tweet (a rebuke to me for claiming to speak on behalf of others without a mandate!). So I will try to explain what I meant by “we”.

I am trying to speak for 18m people in the UK for whom work is not just a means of paying the bills but also somewhere where they generate income for later years.

When “we” pay national insurance we earn credits for our single state pension, when “we” don’t opt-out , we are enrolled into a workplace pension and many of us go further and use payroll to make voluntary contributions to insure against us running out of money in later years.

We know that whatever we save, we are unlikely to see, simply from our retirement savings, a sustainable income that replaces our previous standard of living. We know that we will either have to keep on working (Ros Altmann’s older worker’s agenda) or cut back or rely on money trickling down from older generations.

The “we”, I am talking about are the people I have worked with since I left college school in 1979, the younger people I work with and those who helped me along the way, many of whom are now enjoying the fruits of their labours in their later years.

And if I am talking about us collectively , it is because we behave collectively. We flock to people who are on our side like Martin Lewis (and Ros, Alan Higham and Paul Lewis)

Alan Higham hit the nail on the head yesterday when he pointed out that even Martin Lewis had fallen for George Osborne’s line that you’ll be able to get free impartial advice about your pension options from April 2015.

Alan’s comment was that 7m people rely on Martin for information, guidance- many would say “advice” and that if he interchanges the words, then it’s likely his 7m readers do too.

The BBC ran its news story yesterday as “New pensioners to get independent advice” though the “advice” has now changed to “guidance, “we” have read “advice”, George has called it “advice” and in every guidance session from April 2015 the question on the lips of everyone of “us” will be “so what should I do?”.

Which is the one question that “guidance” cannot answer but “advice” can. Advice includes the provision of a definitive course of action and guidance doesn’t.

And – coming back to my tweet, 90% of “us” want to be at least 90% right. We want a - solution that we can fall back on if our best endeavours leave us flummoxed as to what to do.

When we get presented with the investment choices on our works savings plan, 90% of us choose the default despite us knowing there may be something better out there.

And when we come to retirement 90% of us will want a solution that is reliable, predictable and understandable, that pays out fair shares and is there or there about in terms of the best rate.

Most of us do not want to plead that we are on our last legs and go for an “impaired life annuity”, most of us do not want to appoint a stockbroker or wealth manager to run a bespoke investment strategy with our retirement savings. We want to do what other people are doing and we want to be protected from the negative aspects of herd decision making by Government and Governance.

Which leads me to my big point. Currently there is no consensus product. We have annuities (on which you should take advice), we have individual drawdown (on which you should take advice) and we have “cash” which is what you take if you are a mug- because you will pay lots of tax and get a depreciating Lambhorgini and a hole in your packet by the time you are 75.

People are going to go to those guidance sessions and come out feeling they’ve been presented with Hobson’s choice, an advised product or the risk of financial impecunity in later years.

And this is exactly how those who sell financial advice want it to stay. A polarised choice between an advised annuity and advised drawdown with the prospect of blowing it if you don’t take advice is the content of the guidance guarantee that most financial advisers want.

But it’s not what “we” want. “We” want something that doesn’t lock us into an annuity for the rest of our lives and doesn’t have the servicing costs and unreliability of individual drawdown.

We want to roll back the years to the day when our pension fund provided us with a pension without us having to do much more than give the bank account details into which we wanted the pension paid. We want to know that the process is properly governed and that the rate the pension is paid is sustainable (eg the money won’t run out).

Most of all “we” and I include myself in this, don’t want to have to bother with our pension- we want it to take care of itself to leave us to go fell-walking or umpiring cricket or writing books on fly-fishing (ok- that’s my ideal and I’m sure you have yours!).

So ultimately people want to be advised about what people like them normally do. They don’t want to be told what to do and they certainly don’t want to be told they have to take advice.

Given the information about what’s out there, and what others are doing, most people will do a little investigation and then they will do what most other people are doing, a few will buy an annuity and a few will opt for advised drawdown.

Right now, no-one is building the non-advised product, and that is because they are scared. Asset managers and insurers are scared about annoying IFAs and scared that a mass market product will reduce their margins. Some insurers hope that by sitting on their backsides – people will return and buy annuities, many see the high margins in individual drawdown denied them from workplace pensions.

Employee Benefit Consultantsand insurers or are busy trying to become asset managers themselves,

Advisers are happy to see the status quo continue.

And the status quo will continue until someone in Government gives a big green light to a Legal & General or a NOW or NEST or someone we haven’t even heard of yet – to allow them to build products that offer non-advised drawdown and ultimately the more radical CDC product.

“We” want that product, the 7m people who follow Martin Lewis want that product, the 18m people George Osborne reckons will benefit from the new pension freedoms want that better product.

And in saying this, I am not dissing advice. Advice is essential for people who want it and for those whose financial affairs warrant it. The market for in retirement advice has massive growth potential but it is not the mass market.

Non- advised products-  the Single State Pension and the workplace pension you’ve saved into, will produce non-advised pensions for most of us.  “We” means both the general population and the people they rely on to provide pensions.

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10 things we’d see in Monday’s Guidance Guarantee!

michelle cracknellTreasuryMaggie Craig


Tomorrow (Monday 21st July), the Government will announce how it intends to deliver the guidance guaranteed to those reaching state pension age.

We want an independent process that helps people  take decisions rather than telling people what to do.

We can’t see how guidance can be ring-fenced from advice, especially in a face to face meeting. But we’ll stick to “guidance” for the moment and hope that common sense takes over from semantics in time!

So, never a blog to miss a chance to stick its head above the parapet, here’s the Pension Plowman’s “GG Wishlist”.

  1. The Government sticks to its promise to provide Face to Face guidance where needed
  2. That for those for whom the logistics of F2F are too difficult, telephony and web-links are available
  3. The offer is made by Government in a similar format to NHS check-ups – e.g. a written invitation that arrives in the post
  4. That a central control is established, preferably with the Pension Advisory Service (TPAS), responsible for content and delivery
  5. That the Money Advice Service provides secondary support using its web-based resources
  6. That the Citizens Advice Bureaux are used to deliver Face to Face sessions
  7. That the sessions are no longer than 30 minutes
  8. That the guidance session is not “one and go” but links to TPAS support (where needed)
  9. That the GG is funded by a general levy on the financial services industry
  10. That it is delivered to time to those at SPA but with the ambition to pre-guide those in the pre-SPA retirement corridor (55 onwards) within the next decade

In a future blog, I will review how many of my top ten GG wishes, were realised!

Right now, take the poll and we’ll see how popular the Government’s preferred solution is!


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What are your CDC property rights?


Some pension promises are easy to value

If I promise to pay you a monthly amount over the next five years, it is fairly easy to work out the value of that promise. At it’s simplest level the value is just the sum of the 60 payments though I may want to apply a discount to the value as by the time I get some of the money, it won’t be as valuable as it is today (inflation does that to money!).

But if I promise to pay you a sum of money over the rest of your life, then the sum is a bit harder as I have to guess how long you are going to live, the discounting will (hopefully ) be over longer.

But in both cases , the sums aren’t that difficult and reference to simple tables allows a mathematician to value the promise in pounds shillings and pence.

 CDC promises are harder to value

But this is where it gets interesting. The new CDC pensions have some certainty, we can value what’s going in and estimate what that might buy you by way of a lifetime income at the point of investment, but what you get is subject to the markets and not to a guaranteed formula..

So every payment made into a CDC scheme buys a right to a share in all the pensions paid out by the Scheme but not necessarily a right to a share in the fund. This is quite hard to get your head around but think of it this way.

Whoever runs the fund is trying to ensure fairness about the way it is spent so that there are rules that people feel comfortable with. Life is not entirely fair, some people find that the timing of investments works against them, others end up spending their pension for shorter than others. It may be that some generations get luckier than others.

Trust , transparency and good rules

But these general unfairnesses are bearable as long as we know the rules. People don’t like negative equity in their property but they accept that the price of a house can fall as well as rise. It’s not particularly fair if you are owning a house in Northern Ireland and see property prices shooting ahead in London but you knew the rules when you purchased.

 Valuing the future promise not the present value

We have got used to valuing our pension savings with reference to a unit price. Multiply the units held by the unit price and you have the residual value of your pension pot. This is what happens on the way up (the saving phase) and this is what happens on the way down (drawdown).

But CDC may not work like this. Instead it may work on the basis of the amount the person running the scheme has put away to pay you your pension, and that value will be dependent on what’s happened before- (the timing and incidence of your payments, plus the investment growth since they were made). It will also depend on an estimate of what’s still to come (how long you are expected to live and the amount of discounting going on).

 With CDC, neither the value of the capital or the pension is constant.

Now this is why everyone is getting so aerated about CDC. Whereas DB offers a guarantee of the pension in payment and DC a guarantee of the capital value of your savings, CDC offers no guarantees at all.

And without a guaranteed value, it’s tough on the tax-man!

How , for instance, can the value of a CDC pension be assessed by the taxman for your lifetime allowance. DB plans have a straight 1 for 20 formula while DC plans are valued on the capital value of the units, but CDC transfer values depend on a whole range of factors , at the discretion of the Scheme manager.

 Discretionary values – a charter for Mr Ponzi?

This is why John Ralfe refers to CDC schemes as Ponzis, because a Mr Ponzi , or Mr Maddorf or any of the other crooks who dish out promises with one hand and spend member funds with the other, could be at work here.

It is perfectly true that CDC depends on trust and John Ralfe and others know that the best way to test trust is to robe and ask the awkward questions.

The really awkward questions for CDC Schemes will always be about whether they are spending too much on people’s pensions or spending too little.

Are they reserving too heavily, or operating at a deficit?

Are the property rights offered to you by way of a transfer value unfair on you or others in the collective?

 The answer is that there are no definitive answers

… the answers to those questions will always be “that depends”.

The dependency is about what will happen in the future, how long the people in the scheme will live, how much support will come from new people joining the scheme and what the markets will do to the underlying fund.

But…and this is the point of this blog.. we are a country that has a very mature attitude to notional property rights. We are a country that understands the difference between a poorly run scheme and a well run one.

When something goes wrong as it did with Maxwell and Equitable and Lehmann Brothers, we accept that these things happen. I am quite sure that a CDC scheme will get into trouble at some point. NEST has been subject to a multi-million pound fraud, State Street nearly got away with stealing millions  from the Sainsbury’s pension scheme, people are living on annuities which are half what they should be.

But we also know that the pension system we are part of is under immense scrutiny from Government downwards and that whatever emerges as a CDC pension scheme will need to be scrupulously managed. Every decision on how to distribute , how to value transfers and pay individual payments must be open to scrutiny and rigorously tested.

Is there enough trust in the pension system to tolerate this?

The slogan of the Pension Play Pen Linked In group is “restoring confidence in pensions”. If people have confidence in pensions, CDC will be given a try, if it fails – people will have the right to feel let down and will rightly point the finger at people like me.

I do believe we can have fair property rights in a system of pension payments that depends on discretion. It won’t always be fair and there will be times when mistakes are made. There will be bad practice as well as good practice but I strongly feel that we live in times when it is easier to see through to the core of things (mainly because of advances in information technology).

May this debate continue, it needs to be had, but may it continue in the public arena and not the arcane corridors of power that obfuscate rather than clarify.

CDC is about trust – not about certainty – and that goes for property rights too!

We can value pensions , we can even value CDC pensions, but valuations must be based on trust and not the spurious accuracy of a purely market based approach.



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……we have a problem, Brighton.


Every so often we get asked questions by  people to whom the answers really matter. I’ll leave you to guess who might be asking these ones!



a)Is there really a problem for unadvised small and micro employers to understand the market and identify pension scheme(s) suitable for them?


We think there is and your research confirms ours. The economics of commission based distribution meant that most companies staging up till now had a workplace scheme but as we move into the back end of 2014, the percentage with a workplace pension reduces alarmingly. (see chart below)




What schemes are in place for smaller employers are often uncompliant with the post 2015 qualifying rules (e.g. commission, AMDs, lack of governance, high charges, no default, and restrictive entry). The problem may be worse than your figures suggest as so many small schemes won’t be fit for purpose


A google search on “choose a pension” calls up a handful of providers, TPAS and tPR. Pension PlayPen is not advertising on this phrase but manage to appear 5th on the google list after yourselves, CAB, this is money and the FT. This suggests we are the primary commercial site for this kind of search.


Short of answering the ads of L&G, NOW and Standard Life there is no way of assessing what is out there!



b)   Are there already solutions to this problem out there suitable for small and micro employers?

The great thing about advising on workplace pensions is that the advice is unregulated!

workplace advice

It is quite extraordinary that with such freedom, there is virtually no comparative advice on workplace pensions to be had.

We know only of only one product and it’s ours! (choose a pension- CAP) which attempts to provide the complete service detailed below. We are “inside”partial services such as Chris Daems’“AE in a Box”and HR Essentials’“AE project management service”.


80% of our business is referred with the majority of referrals coming from accountants and IFAs. The market is moving towards us, we have not got the time, resources and muscle to promote ourselves as we would like to. But so far in July we have picked up 4 national awards as the media begin to “get it”. is often referred to  as “employer facing” and this is true. But we have over 500 intermediaries registered on with numbers increasing by 50 a week.


So what are the alternatives?


Many employee benefit consultancies will offer a whole of market broking service but at a cost of several thousand pounds – assuming a bespoke service to an employer.


Some consultancies are offering vertically integrated products which are promoted ahead of an open market option- some IFA networks (notably Lighthouse) are also offering house solutions.


Principal IFAs suggest NOW, NEST and Peoples as Providers who will accept all employers and Pension PlayPen for those who want to make a whole of market choice.


Our discussions with SimplyBiz, Intrinsic, Openwork and Sesame suggest that middleware is more important to them than the workplace pension and there is still regulatory confusion about when advice on workplace pensions needs to be regulated. Regulated firms seem to consider non-regulated work outside their remit!


The same problem occurs with many of the accountancy firms we speak to. For them, the issue is whether as non-regulated organisations they should be even talking about – let alone advising on- workplace pension selection.


c)    Could existing products or services be made more effective/adapted to address the needs of small and micro employers, e.g. could advisor-facing products be opened up to an employer audience?

The products created for advisers by F&TRC and Defaqto aim to add value through the depth of analysis of product features. There is little alignment with what tPR considers the characteristics of a good scheme, nor is there much alignment with what customers want (referring to your research).

Most advisers are still considering workplace pensions from a sales perspective (concentrating on maximizing contributions rather than focusing on outcomes).


A portfolio of 4 or 5 GPP’s with 50-100 members was all an IFA firm needed to have a successful department. They focused on this sweet spot of the market.


Very few IFAs marketed to smaller SMEs or micros as this was not cost effective.


No IFAs have developed automated selection tools which we consider necessary to deal with bulk enquiries. They have concentrated on providing AE support services which replace the annuity income lost from trail commission.


While writing this paragraph an enquiry arrived from an IFA. We quote it as it demonstrates how far IFAs are from advising on workplace pensions


We wanted to get in touch reference your auto enrolment “playpen”(sic)

As you could probably guess this (AE) is an area we are also working in, both for existing and potential new clients.

Our proposition deals with implementation and where required ongoing advisory services for the pension members via our IFA company. Appreciate there may be some overlap but wanted to ask as to whether there was scope for us to forge some form of alliance in  having an informal arrangement .


IFAs are looking for long-term relationships with a small number of high-value clients. To properly deal with 1.2m new employers they should be offering a light-touch automated service at low-cost with no obligation for the employer to see them again.


We fear that the two models are mutually incompatible.


We have no cross-sell to the 350 employer who have used our service –indeed we don’t even contact them post sale unless they ask us to.




d)   How could visibility of those products best be increased among the diverse population of unadvised small and micro employers? Please let us know if you think there are any barriers to increasing visibility to this sector of the market.


This is our big challenge. We recently met with the head of BBC economic affairs, Hugh Pym. Hugh was under the impression that the only scheme you could use for auto-enrolment was NEST. Clearly issues about choice are not confined to micro employers!


The obvious route is to invest heavily in google though we think that only a small percentage of employers will buy in such a random way.

Assuming that IFAs don’t get their act together (and we see very little appetite to advise on a product with such little certainty of payback, then the next stop is the accountants and HR specialists


Websites such as and , publications such as Payroll World and the various online groups that they spawn are the ideal places to get brand penetration so that micros know the name.


However there needs to be an enormous amount of trust building between the pension providers and payroll, HR and finance functions. Our experience so far suggests that most accountants do not think they can advise on workplace pensions full stop. Until that impression is dispelled (and it’s not being dispelled by ICAEW) then it’s hard to see most practitioners helping in choosing a pension.


We don’t see the majority of small business groups being able to do much more than bring people together (and even here the numbers who attend pension meetings are very small). The Federation of Small Businesses, of which we are a member, seem to see AE as a revenue generator and a chance to promote their in-house IFA.


We would be interested to know how successful they have been with this model but suspect that these organisations are not proving the turnkey some thought. There is resistance to the fees necessarily charged to advise face to face on a bespoke basis.


The scaremongering story that the Pension Regulator is going to fine you £10k a day is a lot easier to market than the long term benefit to an employer of getting the workplace pension decision right




e)    What would the appropriate level of scope and sophistication be for solutions for small and micro employers who want to choose a scheme without the services of an intermediary?


We’d like to say but we are clear we haven’t cracked it yet. The big issue won’t so much be the AMC but the on boarding costs between providers.


The insurers are now mostly charging for implementation and ongoing services on top of the AMC and this is providing a propulsion of new business to NEST, NOW and Peoples which are free to use.


The second major issue is the support for AE from the provider. We are finding that employers are flexing the weightings for admin and payroll support “up”and depressing the weightings of member-centric product features (investment, at retirement services).


We worry that members will be asking employers the criteria for the decision taken “cheap and easy for us to use”may not be the answer the member wants to hear!


We think the scope of any service must include

  1. A means for an employer to do a workforce assessment and model the cost of contributions under the various certifications, phasing and salary sacrifice
  2. A means to understand what providers will offer a quote and a means of understanding the nature of that quote
  3. A means of comparing one quote against each other- we use a balanced scorecard
  4. A way of recording the process into an audit trail which can be used now and in future to justify the decision
  5. A simple means of kicking off with the provider- ideally with an API to minimize fuss and bother.We think that the service must have the capacity to deal with sophisticated employers (we offer pretty well the whole First Actuarial analytics if needed). But it must be presented in such a way that it is idiot-proof and doesn’t intimidate and drive-away SMEs and micros without any pension sophisticationThe Answer of course comes with experience, our own analytics tell us when we are getting it wrong and every iteration of our service is close to what the customer needs and wants.    
  6. You hear
  7. Just look at what the public need and how it plays in the Provider’s Boardroom
  8. There is a system that addresses this problem- we own it! The hardest bit for the pensions industry is to rid itself of the conflicts that stymie innovation.
  9. f)    If you dont think the market will or can address this problem, why not? Please indicate whether these are purely commercial considerations or other more basic/fundamental considerations
  • Simple practical steps on how to choose a pension scheme without having to understand scheme types The Provider hears
  •           You hear
  • were losing our brand here – our USP is our marketing and this is driving a coach and horses through our sales and marketing strategy
  • Practical questions to ask to ensure the scheme is suitable (e.g. can I buy it direct, will it do everything I need to do)The Provider hears
  •           You hear
  • this means people rating what we do and calling us on our deficiencies – weve always had control of what people said about us- thats why we had direct sales forces and had the IFAs in our pocket- this is too scary
  • Shortlist of AE schemes available to themThe Provider hears - “so were supposed to advertise our rivals when weve got these employers eating out of our hands – forget it!          You hear
  • Ability to compare charges and any employer fees of shortlisted schemes
  •           You hear
  • The Provider hears “margin erosion- were not having that!
  • Ability to compare wider AE support offered by scheme (e.g. workforce assessment , communications to workers)
  • The Provider hearswhich means pitting our auto-enrolment hub and supported middleware against integrated payroll solutions


So we think that there is very little appetite from the pensions industry to help here. These conflicts make it impossible for the ABI, frankly the NAPF aren’t at the races, our conversations with Unbiased don’t suggest they are planning on building anything for the IFAs (a cottage industry) and none of the major pension consultancies are interested in sharing their prized intellectual property. As one partner of a rival firm wrote to us



“Frankly you have to be mad to try. The chances of getting your fingers burned are high, development costs are high, the skills needed to offer something as simple as needed without compromising our integrity just arent there


Nor are commercial organisations going to endorse an organization like ours without wanting a finger in the pie and the pie has not got enough fruit in it to warrant fingering.


The price people will pay for a choose a pension service is driven by need. At the moment employers do not feel they need to choose and so plump for whatever claims to sort out the problem.


If advisers and accountants continue to duck the pension selection issue then it’s hard to see how things are going to improve.


It would be helpful of Government to do something to promote choice. NEST is a net beneficiary of “no choice”and we can understand the DWP wanting NEST to pick up business (it has a debt to be settled).


But NEST is not the only fruit and we want other master trusts and insurers to be properly represented

So some kind of market intervention is probably needed.


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Male, Pale and Stale – in your face!


I’m not having this demonisation of William Hague, who is leaving office today at the ripe “old”age of 53. Hague is a top man and a voice of sanity in a UKIPutous world

He is leaving Government so that “Dave” Cameron can show his populist muscles off by employing a right wing nit-wit (Hammond) who will defuse Farage.

So good sense will be replaced by populist clamour and we will throw yet more toys out of the euro-pram, to the great amusement of our European neighbours.

By happier coincidence, yesterday also saw the Cornonation of Tsar Ros, in the secular Cathedral of 1 Coleman St. (all doff your caps- it was in the Legal & General boardroom).

My previous blog was quite nice enough about Ros , but I’m going to be nicer still by reminding her detractors, that her Tsarness is doing her work PRO BONO, which won’t be pleasing Mr Altmann too much (get a proper job woman!).


Like Hague, our new Tsar is of a certain age, she is not male and judging by her French tan, she is unlikely to be pale for some time.

If Hague was being kicked out for being “stale”, past his sell-by-date, perhaps Ros can find him a new job.


Yesterday we heard about National Express who have taken great strides to re-enploying older workers by offering them flexble working hours. Another firm mentioned talked of older workers as “gold-dust” while an organistion called Anchor (who I had not heard of before) spoke about older workers value helping the infirm and demented in nursing homes.

One contributor at an excellent ILC event, demanded more positive storylines about older workers in what she charmingly referred to as “light entertainment”. If this means killing off Norris is Coronation Street, I’m against it -he makes me laugh- but Rita does it for me- we need more of her.


I’m not having Billy-boy Hague being drummed out of politics for being state and I’m not having this line about the likes of Norris stopping decent young folk from getting jobs.

The bottom line is that we create jobs by employing people who increase productivity. Getting people in this country to work an extra year is equivalent to 1% on our GDP. 1% on GDP means more goods and services to be bought and more jobs for youngsters- not less.

So the next time you hear the tired argument “fund your staff’s pensions, it’s the only way you can get rid of the buggers when they’re over the hill” stop and think.

Andrew young

Here’s my mate Andy, just turned 65 and like the clever actuary he is, he’s decided to put off drawing his “old age pension”, because until 2016 you’ll get an extra 10.4% interest for doing so! Andy will be championing all kinds of pension causes for as long as he treads the planet.

He will because, like Ros and me and loads of others, we want to be treated properly when we get to the point when we can’t look after ourselves.


Britian is a kind and fair country which intends to look after its elderly population. Ros is a kind and fair person who champions the causes of those in elder years. There are many like her, the great Dr Deborah Price, Sally Greengross of the ILC,


8th Annual London Older People's Assembly, City Hall, London, Britain - 05 Aug 2010


and yes there are a lot of women else.

And there’s Kevin Wesbroom with the halo over his head (to prove you can be male and saintly)

Infact the Guardian recently published an article that was no more than a string of positive images of older people that you can look at here


I look forward to the day when the the state pension age is a milestone not a buffer, when people approach their mid-sixties calculating how much they want to work, not how much they need to work or worse still- whether there is work for them to do.

I look forward to taking a later life gap year when work doesn’t come into it and I can sit back and consider my options  with a degree of financial comfort

And I very much hope that the current formulation of “male, pale and stale”, will be taken out of the political and social lexicon. Frankly Britain is better than that.



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The internet of pensions

unage of pension

A group of teccies have come together to make the internet of things happen. This is from their press release

The Open Interconnect Consortium (OIC) is focused on defining a common communications framework based on industry standard technologies to wirelessly connect and intelligently manage the flow of information among personal computing and emerging IoT devices, regardless of form factor, operating system or service provider.

Leaders from a broad range of industry vertical segments – from smart home and office solutions to automotive and more – will participate in the program. This will help ensure that OIC specifications and open source implementations will help companies design products that intelligently, reliably and securely manage and exchange information under changing conditions, power and bandwidth, and even without an Internet connection.

The first OIC open source code will target the specific requirements of smart home and office solutions. For example, the specifications could make it simple to remotely control and receive notifications from smart home appliances or enterprise devices using securely provisioned smartphones, tablets or PCs.

Which means we’ll have lower electricity bills, won’t run our of toothpaste and I’ll never forget to double-lock every door (Stella).



So that’s my house sorted, what about my pension? Can I have  readily accessible data on my smartphone,table or PC that is really useful to me, my clients and to the Regulator?

It seems to me that pensions is characterised by the lack of useful data to be had and the appalling load times to get the data from one place to another.

Case Study One,  we went to see a leading pension scheme and asked if they knew what they were paying for their foreign exchange hedging.  The CIO admitted to not knowing . When we asked why he said that his custodian could not collect the data and even if it could, would not provide it in a format he could make any sense of.

It’s called an information asymmetry


Case Study Two, The FD of one of our clients is asked by an analyst for the impact on the funding position of her DB scheme of a one basis point move  in interest rates (I believe this is called PV01). This number allows the analyst to understand the sensitivity to their balance sheets of market fluctuations. This information is only available through a handful of sources controlled by those with intimate understanding of the derivative markets. The FD pays a substantial sum for the calculation.

It’s called an information asymmetry


Case study three; I am planning on drawing a pension from my DC savings. I want to know how short I am of my target income calculated using the best guaranteed rate for an annuity, the lower and higher GAD rates (and here I am looking into the future) the highest lowest and median rates offered from a Collective DC scheme.

I want a number that expresses the amount I need to put into my pension to guarantee myself a pension, know how much I need for the upper and lower levels of drawdown and what a collective scheme will give me.

These numbers aren’t available and you’ve guessed it-

it’s an information asymmetry




Now in all three case studies, the data does exist, what’s missing is the pipe to get it from the data source to an integrated database and the savvy to convert that information into something the CIO, the FD and the everyday member can make sense of.

To paraphrase Eric Morecambe- we’ve got all the right numbers but not necessarily with the right people.


There are many other examples of intelligence that are failing us

  • We cannot go online and using the Gateway get an online valuation of our state pension benefits, what the cost of buying extra state pension and how much extra pension we would get if we were to defer retirement
  • The Pension Regulator cannot get Real Time Information on the number of employers paying over contributions to workplace pension providers in line with the auto-enrolment regulations
  • I cannot get an online account of the residual pensions I have from previous jobs.
  • I cannot get online transfer values for my personal pensions and occupational DC pensiosn
  • I cannot get online transfer values for my DB pensions.

The internet of pensions is pathetically limited and while I can look forward in the not too distant future to knowing if I’ve left the bathroom tap on when I’m on my way to work, there is no prospect that I’ll know what I’ve got, let alone what I need – from my retirement planning.

The Open Interconnect Consortium – pensions need you!



This post was first published at

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Carry on nudging!


We may just have been nudged.

We’ve been getting  interested in salary sacrifice. We have been building a salary sacrifice modeller into the workforce assessment tool on by popular demand.

Initially I had thought  salary sacrifice was benefiting employers but following my recent blog on accounting web, I got this tweet.


If this is true, (Ceridian are both reliable and one of the major software suppliers to the payroll industry), then this is important.

Auto-enrolment contributions in the first years of phasing are so small they have hardly disturbed the surface tension that maintains inertia!

But we are still in a period of acclimatisation for many employers and their auto-enrolled staff. While  the implementation went well, they are still getting used to the temperature of the water!

But as smaller organisations become more confident, switching to a salary sacrifice arrangement may be the next stage in the process.

And we are very much in virgin territory now.

Those who think that DB provided universal protection to workforces large and small are kidding themselves. DB take up was typically targeted at  higher earners and those  with low but stable earnings were often disadvantaged if they did join by offsets which depreciated the value of benefits.

Most of the employers still to stage auto-enrolment have never offered a DC let alone a DB plan to staff so any pension contribution is a step in a new (and to many dangerous) direction.

If we can encourage employers to go the extra inch by adopting salary sacrifice, if it gets them and their staff engaged in the workings of pension contributions, then we are another nudge closer to an adequate contribution.


This is how you boil frogs, turn the heat up slowly and eventually you can turn it up faster.

Frog-b0iling may not be as politically acceptable as nudging but it comes down to the same thing. To get to adequate pensions for all we need to nudge and keep nudging and we needs always be careful not to alarm the frogs who still have the energy to jump out of the pot.





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Pension PlayPen overall winner at IMAIA 2014!



Not every swan is black

We do “new”, not because old is wrong but because new is where the future is. So we entered the IMAIA this year at the behest of our friend and mentor Jenny Davidson, the new Reward Director at Talk Talk.

Marketing’s a dirty word in some parts of my company, it is to actuaries what acting was to puritans, a satanic diversion from the job in hand.

While the day job is to pay people’s pensions in full and on time, there will be no pensions to pay if we don’t smarten up our image and make pensions a little more palatable to those who sponsor them.

This is the blurb from IMAIA which caught our attention.

The multi-billion pound investment industry just got  its own set of marketing awards to recognise the innovation and effectiveness across the sector

The Investment Marketing and Innovation Awards (IMAIA), hosted by Investment Week and Professional Adviser, were held on Friday 4 July 2014 at the Royal Garden Hotel in London.

The awards recognise and reward innovation within the sector.

The judges looked for entrants who showed:

  • The appetite to seek new solutions
  • The confidence to make them happen
  • The expertise and determination to turn new thinking into business success

IMAIA is a new type of awards programme. Some awards recognise only creative output; others require quasi academic papers to evidence effectiveness. IMAIA charts a new middle way.

‘The IMAIA categories are designed to embrace the entire investment community. Anyone who can demonstrate New Thinking in any of the categories is eligible to enter. This means a small firm of financial advisers can compete on the same level as global companies such as Fidelity.

‘A good idea is a good idea, irrespective of budget, and that is part of what we are looking to recognise.’

Thanks guys and thanks for the free ticket that meant that our friend Sarah Hutchinson was on hand to pick up three gongs.

Pension PlayPen is the social media organisation of the year

We beat off challenges from  Allianz Global Investors, ContractorFinancials Ltd,Finsbury Growth & Income Trust PLC,MRM and the lang cat (joint entry).

We love the furry Mark Polson of the lang cat who we are pleased to hear was highly commended

Pension PlayPen won the Inclusiveness Award

As we jolly well should have, being the only organisation that seems concerned about the quality of workplace pensions that are being purchased by the 1.2m employers still to stage auto-enrolment.

Pension PlayPen were judged overall winner for reward and innovation in the financial services sector.

This is no small feat. We are barely a year old and have only traded for six months, we employ one person and have no office, no PR and nothing but our digital footprint.

With total capitalisation of £200,000 from the back pockets of its founding directors, Pension PlayPen, is and will be making a profound difference to auto-enrolment. In our thought leadership, our capacity to bring together pension providers and out outreach beyond pension markets, we are doing what we said we would.

It is great to be recognised. I am really sorry I could not be at the awards in person as I support what IMAIA are doing and hope that this new kind of event will flourish.

Thanks to Incisive and to all at the awards- especially Brendan.

If you’d like to find out how to choose a workplace pension for your company or client - register here

If you’d like to come on Lady Lucy, tomorrow, mail

If you’d like to join us for lunch at the Counting House ,EC2 on Monday (July 7th) just turn up between 12 and 12.30. We will be debating whether we need Collective DC.


There were some consolatory factors that mitigated my disappointment. Thanks Masha and all who made yesterday’s trip so wonderful




The delights of Henley Royal Regatta – a Pension PlayPen annual outing!

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Pension PlayPen- Britain’s most innovative pension consultancy

workplace advice


Dawid Konotey-Ahulu mailed me yesterday to tell me we’d been named Engaged Investor’s most innovative pension consultancy. It’s a mark of Dawid’s genorosity that he thought to contact me, even though the firm he started Redington had (along with Aon) been the other firms shortlisted.

It’s quite something for Pension PlayPen Ltd to win a national award only 12 months after incorporation and says much for the judges (the great and on this occasion the good!). It also says good things about digital journalism which is putting innovation at the top of the agenda.


That’s enough sucking up, what is innovative about Pension PlayPen.

  1. That we thought to enter this award is innovative. Historically start-ups wait their turn, given a ten year track record- you might just be considered worthy of inclusion in a long-list but it’s presumptious to consider yourself in the same league as an Aon or Redington.
  2. What we do is innovative. No other consultancy has tried to help the smaller employers in Britain by bringing big-firm analytics within the grasp of the SME. We hope we have done our bit to keep choice alive in a world that could so easily become the domain of NEST.
  3. How we do it is innovative. We realised from day one that what was needed was a business to business portal that allows smaller firms to go about finding a workplace pension and using it for auto-enrolment without having to spend a fortune. DIY was and is the only way to bridge the advisory gap.
  4. How we get to our customers is innovative. We’ve forsaken the tried and tested routes to market, you can find us on twitter and google but you’re as likely to hear about us through Payroll World, or NACUE or AccountingWeb. We’re as interested in Buzz and Vice as the FT and the BBC!
  5. What we charge is innovative. Of the 350 companies who have used our service, only a handful have paid for the due diligence that we charge for. The majority have used us for free and we are happy with that. As our service progresses , we will ask more to pay, but for now we are busy restoring confidence in pensions and that takes an investment.


If you haven’t come accross us yet and are interested in the quality of pension on offer to your organisation, then register at, bang in your company details, assess your workforce, tell the machine what the company will contribute and find out who will provide a pension for you.


The key Intellectual Property is in the ratings of the providers and the scorecard that allows you to weight each rating by what’s important to you. Thanks go to First Actuarial for their due diligence, integrity and imagination in providing us with this reseach.

Whether you are doing this as an employer or on behalf of a client, the system is designed to be as user-friendly as can be. We try , as our name suggests, to make the business of choosing a pension, a pleasurable experience.

We are so so proud to have won this award and very much hope it will encourage a few more employers and/or their advisers to choose a pension our way!

old and new


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Awards reward Pension PlayPen for a cracking year

hi res playpen

It was only a year ago when I, Andy ,Stella ,Martin, Steven,Guy and the lads from @firstactuarial signed the share register and launched

Within 12 months we have had nearly 100,000 visitors to our site; 329 companies use our choose a pension service ; we’ve iwimaia14-logo-long-320x198 helped a good proportion of them to a good workplace pension and a happy staging.

We’ve had generous advertising over the period from our sponsors L&G, Now Pensions and Ease and we’ve created a few headlines in a year when so much has changed.

In the meantime the Linked In group has grown to nearly 5000 disparate pension afficianados, we’ve had 17 mentions in Government consultations and we’ve even had a horse run in our colours.

In November of last year we were shortlisted by Payroll World as Technology provider of the Year and we were nominated by Pensions Age in March for our work in promoting Auto-enrolment at the Pension Age Awards.



In May we oh so nearly won the Pension Personality award!


Over the next six weeks we are up for a further ten awards! Here are details of a few!



We’ve taken people to Cheltenham, to the theatre, we’ve hosted lunches up and down the country and we’ve done our best to make life a little more fun.

And we’ve worked with Government , trade bodies , payrolls, insurers ,master trusts ,IFAs, benefit consultants, actuaries and journalists to make sure we do our bit to restore confidence in pensions.

Now it’s your turn! Help us to help other auto-enrol their staff into workplace pensions

Sign up to and join the Pension PlayPen army as we make sure nobody gets left behind!

AE one two three


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No small company should spend 103 man days on pensions!

AE one two three

Paul Foot of Sage is right to point to research carried out by the London Business School that concluded that 103 man days were being devoted to auto-enrolment by companies staging in 2013.

I don’t know how you account for time but that looks like a six figure bill to me and unless that cost falls substantially in 2014 and again in 2015, the impact of auto-enrolment will be too heavy for many small businesses to bear.

Which is why we must make auto-enrolment easier. In early 2013, we and some colleagues from the CIPP, payroll software delegates and payroll managers visited the pension minister to ask for easements in the alignment process. We got them and they are now on the statute book.

We are now on a new crusade.

This time, we want to create a common data standard that means that payroll software suppliers and payroll operatives don’t have to build and manage a separate process to deal with each separate pension provider.

To give you an idea, one major payroll software house tells us it currently has 46 different ways to manage the relationships with insurers and master trusts!

So while some of us are creating a common data standard a quorum of  leading pension providers. others are visiting the CEOs and management teams of the insurers who are reluctant joiners.

We’ve been here before creating standards for funds administration and we know that this will not be an easy or pain-free process. 

The big win is that it should help bring down those 103 days!

In doing so , we hope to keep the momentum established so far going. Auto-enrolment has been a success but only because larger companies were prepared to fork out for consultants like me to set things up their way.

But we need your help!

Many insurers have invested heavily in payroll and HR interfaces which they believe are their USPs, we have to tell them that practitioners are both aware enough and motivated enough to manage auto-enrolment using their existing tools.

By signing up to the Accounting Web “No-one gets left behind” campaign, you are demonstrating that you , as well as all the others on here, are going to engage with auto-enrolment and see your company and/or clients through staging.

So sign up here to the no-one gets left behind campaign!

Let’s reduce the burden of auto-enrolment so get behind the campaigns of CIPP,BIB and FoAE for a common data standard.

Most important of all, get on the Pension Regulator’s site and use the free tools they offer to get ready for staging.CIPP

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“We are as concerned as we can afford to be”


The DWP has now presented the draft bill that will enable Defined Ambition pensions to be set up, probably from this time in 2016.  While lawyers pour over the clauses, it’s worth considering the responses the Government received to the ideas it floated in “Reinvigorating workplace pensions”.

The Government’s response can be found here

The stated aim is to “let a thousand flowers bloom” in the pensions garden but privately the DWP except that many of these flowers are weeds and that market gardeners will quickly concentrate on cultivating the flowers that sell.

The paper is supported by some market research commissioned by the DWP which is published separately here. It is worth a look if only for the comment of one employer

We are as concerned as we can afford to be.

The reaction of those who I have spoken to is that all this is an irrelevance. Employers will not be concerned enough to take a step closer to DB.

Consultants are quick to raise concerns

Earlier this week, Nico Aspinall of Towers Watson told an NAPF DC connections audience that his firm considered the political risk of a future Government crystallising the promises of target pensions into guaranteed benefits, a serious threat to their development

I was told by one large consultancy yesterday that they will not be working on CDC as there is nothing in its development that has any commercial interest to it.

In short, ambition is in short supply and a passion for collective solutions pretty muted!


These Consultants are tilting at windmills!

Our consultancy, First Actuarial disagrees with this obsession with failure; we think that many of the giant threats on the horizon are no more hostile than the windmills that Don Quixote tilts at!

We are enthusiastic supporters of collective pensions as anyone who reads this blog knows. Commercially we see ignoring the opportunities of collectivism as at best short-sighted and at worst “beggar my neighbour”.

This is based on these simple observations

  1. There is nothing in the market for people retiring with DC pots other than advised drawdown, annuities or non-pension related investments
  2. The British public are still wanting income in retirement, they just don’t want annuities
  3. Ordinary people want managed solutions which don’t involve them in making investment choices or decisions about self-insuring (against living too long or long-term sickness)

For a very large proportion of our population, defined benefits – principally the Basic State Pension but also (for those working in the public sector and a few private companies) workplace DB schemes, will be their principal source of DB income.

The paper makes no attempt to deal with the problems of DB, these have been put in the “too hard” box though the door is left open to future Governments to do a “New Brunswick” and take on immediate risk transfers from those paying for public pensions (the private sector) and those benefiting from them (the public sector).

The paper explores the four models that have been put forward for DC plus. Frankly this is civil servant doodling, none of them have much practical application for workplace pensions and I’ll leave them to wither on the vine (they aren’t coming to market).


The meat and two veg

The paper’s meat is in the CDC section where there is a new definition emerging of “collective benefits”

Obsessed as we are by pension saving, we forget that we are approaching a point where DC will be a major capital reservoir for pension spending. We can spend individually (buy an annuity, set up a drawdown plan or pay the tax and put our pension pot in our bank account.

Or we will be able to enter into a collective benefit scheme which will pay pensions from a big pot managed on “big pot” lines. There are many examples of pensions being paid from big pots – all of them are called defined benefit.

Paying pensions from a big pot and not guaranteeing the pension is what is new.

Looked at it this way, it’s hard to know what all the fuss from consultants is about. It really is nothing to do with employers whether people choose to have their pension paid from a big pot without guarantees or to set up an individual arrangement. The employer need no more than signpost the opportunities and let guidance do its work.

If we were to view CDC at this point as an option for people to get paid an income from a big pot at a rate of consumption advised by professionals with a decent degree of certainty, we have the essence of the Government’s ambition.

For me – that is enough!

Employers may want to get involved but they don’t have to. Providers will be keen enough to get involved- there is some skin in the game for them. There will be many people who will want to be involved in the management of these schemes- pension trustees abound.

Most importantly, I reckon that around the same number of people who want to take no investment decisions in the build up of their pension pot, will want no part in the spending of their pension pot.

If about 80% of the accumulated pots we are building up from private pension saving, through auto-enrolment and through the DC plans that pre-dated auto-enrolment and already cover millions, are spent collectively, then those who are currently poo-pooing CDC, may join First Actuarial.

We think there is a high certainty that we are right and if you read the consultation response  you will see First Actuarial’s support for CDC displayed.

We wish the DWP success as this bill makes its way forward and look forward to the development of a third “collective” way of providing for the demands of later life.


Yesterday was another step on the way to Defined Ambition pensions, I hope to be there at the end of the journey but know that we are still only a few miles down the road.

We stood here in 2009 with auto-enrolment.


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“Who’s on our side?”


I’m having dinner with TV educationalist Alvin Hall, a man almost as well know for being attacked by ostriches as for his charismatic TV appearances.

Looking through the list of other guests at the supper I reckon they represent the interests of some 200,000 ordinary working people – and that’s just the pension managers – apart from them, there are people like me who are hired guns- employed to talk to staff -on the employer’s or trustee’s behalf.

Alvin was involved in a workplace project with Morrisons, I’ve written on this blog about their Save Our Dough and about the way that Alvin gained the staff’s trust.

It doesn’t always work. The members of the BBC Pension Scheme didn’t take to the £1m campaign to convince them of the benefits of accepting changes to its financial plan. But I suppose reports in the Telegraph about the BBC bosses in “secret champagne dinner paid for by KPMG” didn’t help.

From the anecdotes I’ve heard from BBC pension members, the view was that KPMG were there at the company’s bidding. They ended up (probably unfairly) being seen as part of the problem.

Ironically, almost all the pension strikes we’ve seen have been from members of gold-plated schemes who see future benefits being a little less than gold. Companies that never bothered with pensions don’t seem to get the same grief!

The lessons we’ve learned from our work with  staff of large employers is that you cannot hope to educate unless you can engage and you can only engage if you are empathic-independent and competent.

Proving your can empathise with staff involved a bunch of skills from the emotional intelligence locker- skills which aren’t taught to actuaries an which have to be learned (we actually had to use a consultancy to de-program us from our actuarial ways!

Proving you are independent is even harder. It’s not just a matter of being independent of the boss, it’s about showing you are not in anyone else’s pocket.

Alvin Hall mentions Martin Lewis as a man who has convinced his money saving experts he is on their side. He does so by telling them how he is making money from their site and explaining that it’s his money saving experts who are making him rich. I’m one of them and I don’t begrudge Martin a penny.

I don’t suspect martin would take our his paymaster’s for fancy champagne dinners, but if he did, I’m sure he’d write about it and explain why.

So tonight I’m going to be getting out the First Actuarial check-book to pay for our supper so that we can better understand what Alvin reckons is right and better understand what the pension managers reckon is right – so we can do the best as hired guns – to get it right.

And you can be sure that I’ll be writing about what we found out, so that a few more of us can work out how to be “on your side”.



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Andrew Young – 65 not out – a pensions legend!

Andrew young


Andrew Young is the Pension Regulator’s Strategy Director, he is the go to guy in UK pensions if you want to understand the implications of Government Policy.

He has been a mentor to me since I first met him at the back of a bus making its way up to an Icelandic glacier in the late 90s.

Back then Andy was the Government Actuary to the DWP and he spent his time working out what worked where. That he found himself exploring pensions policy in Aya Napa or Reykjavik should not be treated as a coincidence. Andy is no ordinary actuary.

Last night, his wife Sara threw a surprise party at his daughter Victoria’s Front Room restaraunt in Seaford, East Sussex. Stella and I were privileged to join with in the celebrations.


Victoria’s Front Room Restaraunt- like Father like Daughter

We sometimes underestimate the difference that a few people can make on the way things work. Andy is one of those few people.

For the tens of thousands of people whose pensions are paid by the PPF, for the millions that will enjoy better state pensions from 2016 and hopefully for those of us who get better private pensions as a result of the Defined Ambition pension- we have Andy  (at least in part) to thank.


He is an unerring optimist, someone who even when things are against him, can find something to cheer other people up. Often he has sent me an e-mail sharing his frustration IMG_4694with some failure of policy or aberrant behaviour among his many associates. But the mail never ends on a negative, there is always a perspective- usually a chance remark about one of his children (he is a prodigious begetter of children and a great Dad).

Now he has reached 65, he has deferred his state pension as any sensible person should – till April 2016 (it’s worth about 10.4% a year).

He is not stopping working, he is thinking about how to shape secondary legislation for the new middle-way pension from next year. He is loving his wife and wider family and keeping his friends happy.


I’d like to say that guys like Andy make it all worthwhile, but there aren’t guys like Andy – he’s a one-off and Britain is a better place because of him.

You can’t say that for many – you can for Andy Young.





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It was auto-enrolment that did for Hitler?

I’m not a big video man – who wants to spend 3 minutes of your working  day watching with the sound off – good news with this one is that it’s got sub-titles! The other good bit is that it is genuinely funny and the production values are first rate.

Thanks to Will Lovegrove of Systemsync 


So here’s what Adolf was getting worked up about.

Supposing he’d been running a bureau with 100 clients relying on him to run the payroll and the auto-enrolment.

Let’s say he was running pensions with NEST, one of the providers that don’t use straight through processing but demand that you upload CSV files, wait for the confirmatory email and then complete the process, and that you’re doing this 90 times a pay period. You’d be going bonkers!

And now let’s think of the problems when he’d have had fiddling around with the fields of the CSV file for every provider (there are reportedly 47 separate interfaces)! If that had been you, you’d be as hot under your leather coat as the Fuhrer,

And this is precisely what it’s going to be like for said bureaux (I’m not suggesting that they are all run from a bunker with Adolf in charge).


But I do know there is something that can be done about this, that it can be done and in before April 2015 and that it can be adopted by all the leading the pension providers before the Tsunami of auto-enrolment hits next year (see chart).



We reckon by this time next year, the capacity of the IFA community to hold the hands of clients (the line starting with the green spot ending with the red spot) will have fallen below the demand for those services and that it will remain below demand for the remain 30 months of the staging process.

There is simply insufficient capacity in the market to manage the Tsunami of schemes from April 2015 onwards.

Which is why we need a common data standard and straight through processing if we are to avoid a big cock-up.

The good news-

The good news is that we see genuine steps being taken to create such a data standard. More on this in blogs to come. But for now- take it away Adolf.


Posted in accountants, actuaries, advice gap, auto-enrolment, Payroll, pensions, workplace pensions | Tagged , , , , , , | Leave a comment

A buyers guide to auto-enrolment software

auto-enrolment traffic jam

Some initial thoughts

Auto-enrolment software exists to automate the processes your company needs to establish to stage and maintain auto-enrolment.

For most employers it is another payroll headache (along with RTI) that needs a purchased solution. Normally companies purchase on a referral basis but this is difficult with auto-enrolment. Those who have staged auto-enrolment are large companies.

Many larger companies have engineered their own processes at great corporate expense.

Companies staging auto-enrolment from now are more likely to buy packaged solutions which can be purchased “off-the-shelf”.

Can we identify key purchasing drivers that are common to everyone?

The common drivers in all employer decision making are compliance, ease and price. Compliance is seen as critical and expensive solutions that convince as future-proof are often purchased despite being pricey and cumbersome.

However, prices are falling  and the ease of use of software is increasing.

Where do employers go to buy? Is there a software supermarket?

There is no software supermarket or comparison site. This guide sets out the fundamental choices for you and offers some help in purchasing.

We recommend that every purchasing decision starts by a thorough assessment of your payroll’s capacity to “do the job”.

As a second step, we recommend you talk to your provider. If you do not have a provider or are looking to establish a new arrangement for auto-enrolment, we recommend you use which provides ratings of all provider’s payroll and HR support services (what is often called Provider Middleware)

So how independent is this buyers guide?

We will try to remain as independent as we can but will be declare an interest in one solution. ITM who provide the software solution EASE, advertise Pension PlayPen and we promote EASE as our “endorsed” product. Otherwise, Pension PlayPen has no links with any

The method we’ve employed to our guide to buying.

To make things simple, we’ve broken the purchasing decision into five easy questions. If you can give a yes to question one- then you’ve probably got your answer, if not – move on to question two and so on.

But by reading through to question five (which is about advice) we think we hope we offer you a purchasing process that works.



Question One – Is your payroll up to the job?

Over  600 payroll software systems are registered with HMRC but the vast majority of companies use the software of a handful of firms, Sage and Iris being the biggest.

Most payroll software solutions offer help to employers with their auto-enrolment duties. But some complex payrolls are complex and some softwares solutions are not ready.

If you want to see how state of the art pensions software looks today, have a look at Sage’s latest advertisement

Question Two – can you rely on you Pension Provider?

Some providers such as NOW Pensions, provide middleware “free” within their product. You can think of this as a fully bundled solution and you pay for it whether you use it or not

Some providers such as L&G and Standard Life charge for the middleware. L&G have a one off charge for getting you set up of £1,000 , after which the software is free. Standard Life charge £100pm for their support which is bundled into their “Good to Go” proposition.

The position with other insurers can depend on whether you are using an IFA or working directly (Scottish Widows have discounts for their software if you employ an IFA).

Do all providers offer middleware- what about NEST?

NEST is an example of a provider that has built strong interfaces with many leading software houses and works with third party middleware or directly with payroll but does not provide integrated middleware.

NEST is a special case as it is prevented from offering a middleware solution by its charter.

Question Three – should we consider independent middleware?

If you are uncomfortable with your payroll  and uncomfortable with provider middleware  we suggest you use independent middleware.

This will provide a belts-and-braces solution that gives you freedom to change pension providers without having to re-engineer your auto-enrolment processes.

Increasingly we see middleware being offered as a “managed service”  much as a bureau manages your payroll on a fully outsourced basis

There are several vendors of independent middleware, the Pension Play Pen’s chosen partner for middleware is EASE ,who offer standalone software for in-house use and a managed service.

Question Four - what about wider considerations such as flex?

As mentioned above, the three purchasing drivers should be compliance,ease and price. For some companies , who provide a full range of flexible benefits and/or complex pensions , integrating auto-enrolment is going to present especial challenges.

This is an area of the market where you really must take advice and it probably is best if you work with your corporate advisers

Much middleware is provided by software houses who specialise in flex. Staffcare,Benefex, Orbit, Benpal and the proprietary software of Corporate Advisers , fall into this category.

The table below shows these additional services at the bottom,

It is provided us by our friends at the Auto-enrolment Advisory Group and gives an analysis of the state of providers as at March of this year. We do not suggest you rely on the the colours of the boxes, but we think it is a useful checklist for you to work out how complete the service you are looking at actually is.


Question five – should you be taking advice?

Although finding an easy,compliant and competitive solution to auto-enrolment is important, you do not need regulated advice to make the purchasing decision.

As the statement below makes clear, your normal business service providers can advise you both on the payroll and pension aspects of your auto-enrolment decision making

workplace advice

In conclusion

Pension PlayPen opinion has changed and is likely to harden; we see payroll as the long-term solution for most small employers with middleware offering a service to employers with a weak payroll function or complicated benefits.

The market is changing and this overview may help to explain the reasoning for these conclusions.


A short history of auto-enrolment software provision


Where the market has come from – bespoke solutions for complex problems

The large companies who staged early on had no choice but to create their own processes. Many employed middleware selectively often to provide tailored communications or to deal with multiple  workplace pensions.

The second wave of employers used more off the peg solutions. Ceridian led the way in providing payroll solutions that didn’t require middleware, some providers started using their proprietary middleware solutions. Larger employer benefits companies such as JLT, Capita, LEBC and Johnson Fleming promoted their own-brand middleware solutions.

Where the market is today- the IFA is currently king

The current market is seeing an increasing reliance on payroll solutions. Sage and Iris in particular have come up with cheap ,workable solutions that do not rely on data transfer through third party software.

The market for third party software is now quite mature. This is a heavily intermediated market and is dominated at present by IFAs

Staffcare (who market themselves to IFAs as “Jargon Free Benefits”) , remain the largest middleware supplier and compete with a large number of new systems.

Many offerings are simply white-labelled versions of software available directly. IFAs are key distributors and are critical to ensuring this part of the market remains compliant

We are concerned that there is probably over-capacity in terms of software and-under capacity in terms of people capable of using it.

As mentioned above, our endorsed solution is EASE, which is available as software or as a managed solution.

We see middleware increasingly competing with payroll bureaux to provide employers with a fully managed solution.

Where the market will be – enter the accountants and the bureaux

Smaller companies preparing for auto-enrolment are spoiled for choice with providers, middleware intermediaries and software suppliers all providing products.

In this cluttered world .we see accountants and bureaux being the turnkeys. The purchasing decision will still be the same but the process will increasingly start and end with payroll.

This is partly due to the improvements in payroll solutions as more and more software suppliers provide integrated payroll/AE solutions. It is partly due to the greater simplicity of the smaller company in terms of numbers of staff and the simplification  of the payroll operation. And it is partly because IFAs are less able to add value for smaller companies and are less prevalent doing so.

If you are a company staging from the back-end of 2014, we would expect to see your accountant as your primary adviser.

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The public are in a “win-win” from pensions (for once) !

three wise monkeys


This report appeared in a recent edition of the Telegraph on the Monday before the Queen’s Speech.

The insurers have suffered their fair share of turbulence so far this year.

The shake-up of the annuities market unveiled in the Budget, the cap on pension charges and confusion over the scope of a regulatory review of the life insurance sector have all weighed on the sector in recent months. Unfortunately for investors, the upheaval is not over.

Standard Life slid 6.7 to 393.3p on Monday on concern that the group would be hit by the introduction of workplace “collective pensions”. Such funds, which would see workers pool their investments rather than build individual pension pots, are already common in the Netherlands and could be introduced here by 2016.

The reforms, reported by The Sunday Telegraph, are expected to be unveiled in the Queen’s Speech on Wednesday and the news “adds another unwelcome layer of uncertainty for investors”, said analysts at Bank of America Merrill Lynch (BoA).

While it may be that UK insurance companies “play an active role in the creation and administration of these collectives”, the BoA analysts noted that “this is not the case in the Netherlands”.

Given that Standard Life and Friends Life are the market leaders in corporate pensions, they “would likely be most affected by the creation of collectives”, the analysts predicted. As a result, shares in both came under pressure: Standard Life took most of the damage and ended the session as the third-heaviest faller in the FTSE 100. Friends Life reversed an early 1.2pc decline to close up 1.4, or 0.4pc, at 314.7p.

We are unlikely to see any of these CDC schemes until at earliest the summer of 2016, the market is taking an unusually long-view!

But I think the market is right and the commentators within the pension industry who say that the introduction of CDC will be a damp squib, could be wrong.

Many asset managers see the new annuity framework as an opportunity for them to take back market share lost to the insurers in the move from DB to DC. The Telegraph also features a bold article by Cambell Fleming, CEO of Threadneedle, one of the active investment managers who have feet in both retail and institutional fund management.

Threadneedle have tried (and failed) to become a DC  pension provider in their own right- ironically competing against Zurich (who owned them and then sold them). They failed and are now bit- part players on the insurer’s fund platforms.

The active asset managers, assuming they can get their product into the new collective schemes (and many will argue this will be another passive play) are likely to be net winners from a move to collectivisation. But it would be through their institutional rather than retail presence that they would make this advance.

But most insurers have little skin in the asset management game

Why the ABI and their members are so furiously opposed to CDC is that they get the threat that has marked their shares down. Many of the insurers have kept their asset managers, Sottish Widows, Friends Life and Zurich have sold their asset management arms and now lease-back fund management or contract it out to other managers (usually passive).

Even those insurers with integrated asset managers (Aegon, Royal London, Standard Life and Aviva) see the majority of funds on their platforms to other managers. Only BlackRock and L&G are net beneficiaries of this open architecture and only L&G offer their own mass-market pension product.

Traditional Insurance distribution channels are looking increasingly irrelevant to secure new pension related business.

Even more worryingly for most insurers, they have almost totally lost their institutional distribution capabilities.

By concentrating on IFAs  and direct retail distribution, the insurers have looked to build their businesses around a B2C (business to consumer model). This is at the other end of the spectrum to collective DC schemes.

Even where they have kept corporate relationships, they are ultimately using the employer as a gateway for retail products- group personal pensions.

So a return to collective arrangements -where Trustees or IGCs operate pooled solutions and the end consumer – has virtually no touchpoint with the insurer runs directly against the strategies of the insurers.

Who will win in this long-term game?

I don’t think that CDC is a bonanza for insurers or active  fund managers- both will see margin erosion and any change will benefit low cost passive managers.

I know who I want to win- the consumer.

Both the insurers and the collectivists will argue they are on the consumers side. Where the focus turns on the needs of the consumer rather than on securing distribution….

There should be  only one winner -the public

Ultimately this is a political decision, by which I mean it will be decided by the “polis” – the people.

If collective solutions reach fruition (and there are many hurdles to get over before they do), then they will compete for the money of the “polis” (consumers as we call ourselves) and they will decide.

Undoubtedly the debate will drive many under performing  pension schemes – especially trust and master trusts – out of the market. This consolidation will hurt the consultants to these schemes (of which I am one). Collectivisation is not good news for actuarial and other pension consultants, in fact it will speed up the end game for the occupational pension industry as we know it.

The consolidation that this debate will drive will further benefit the consumer.

I think this move of the Government’s is a “win-win” for ordinary people. If the financial services industry continues to drop its prices to see off the threat of collectivisation- the public win. If they don’t then collective pensions will take over – and the public will win.

This compares with the “lose-lose” we have seen over the past twenty years where the public have lost access to collective solutions and seen them replaced by financial products which are too expensive to be “fit for purpose”.

As a 52 year old who has saved hard most of his working life, I am personally very pleased with the way things are working out and look forward to seeing value created for myself and my generation.

And finally – thought for those consumers who can’t win

However I continue to worry for the generation of DC savers older than me who have been caught in an annuity trap form which there is no way out.




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This country needs a proper debate about old age


Do we understand  how people want to get paid in retirement?

Yesterday I wrote about the American 401K system and the risks taken by people who become too cautious as they become older. The value judgements implicit in the report were based on “received ideas” about how markets operate , established by those in the financial markets.

But an equally valid argument might build from the bottom up. Social marketing organisations build propositions based not on what people should do, but on what people do. This gives people the products they want (but maybe not what they need).

In the market in which I work, the buzzword is “freedom”, the budget pension reforms are proving very popular in concept, though the question now is “what do you do with your freedom?”.

value of something

Since the Budget, the Government has introduced what looks like another pension freedom- one that allows schemes to be set up to meet the needs of people and companies.

While it is easy to define what people don’t want (in this case annuities), it’s not so easy to define what they do.

We are not the first country to grapple with how to organise pensions to meet the collective need of a large part of the population. Here is an extract from an article from ATP (the parent of NOW pensions) explaining how it was going to organise a “New Model Guaranteeing a higher ATP Pension for all Danes”

The article was written in 2008

Anders Grosen and Mogens Steffensen both emphasise that the current major issue of debate in the world of insurance and pensions is whether guarantees should be issued at all:

»Products with built­ in guarantees may not be issued
10 or 20 years from now,« says Mogens Steffensen.

Grosen agrees: »But if you want a model with guarantees, this is the way to do it,« he says.

»The decision of whether or not to ap­ply guarantees is indeed a political one.

Furthermore, it is one that involves con­sideration as to the role of the scheme in question in the wider multi­pillared
old­ age protection system and as to the distribution of risk between individuals and the pension provider.

 Understanding the distribution of risks is at the heart of it all

In the Danish model, the link between State and Private pensions is bridged by ATP which is a state owned provider operating a monopoly on second pillar pensions.

To suggest that the Danish CDC model could simply be reconstructed in Britain ignores the existing pension architecture and ignores the wishes of the people who it would be aimed for.

As Steffensen and Grosen says, what ATP delivers by way of risk and return evolves from what people need and that is decided in part by what people have got.

In the UK we have a steadily strengthening Basic State Pension, DC savings are increasing while DB rights are decreasing. The appetite to guarantee pensions from employers is decreasing and the appetite to purchase guaranteed annuities appears much less than annuity sales figures would suppose.

The Government cannot stand by and allow the market to reform since the market is currently unable to deliver certain options – specifically collective pension solutions that do require little or no employer sponsorship. This is why there is going to be legislation- the Government decides what doors are open and what doors are shut.

But while Government can open doors , it cannot build all the solutions. That is a job to be shared with the financial services industry.

And while the financial services industry can build the shopping mall but the shops themselves will be built around people’s needs and wants.

We do not seem very interested in finding out what people’s needs and wants are.

But it’s not hard to ask…

“Would you be prepared to take a pay-cut in return for a job for life?”

“How much of you pay would have to be basic, how much performance related?”

“Would you work for an employer if you thought it might go bust?”

We’ve got get used to thinking about our income at work in these terms; these are the questions people should be asking themselves in retirement.

 We are changing the way we get paid to work

The UK population is proving incredibly flexible in the way it is adapting to change. More and more people are going self-employed, many are prepared to work zero hours contracts, traditional 9 to 5 working is becoming less frequent.

We are changing the way we look at work and how we expect to get paid.

The same will happen when we stop or reduce our working time in later years.

Now is the time for a great national debate on how we want to organise our income in later life and that debate needs to be organised both by those in Government and by those in the pensions industry.

 We are changing  the way we get paid to stop work

It is time to get people thinking and discussing their future and we should be using the data that comes from those discussions to shape the future of the products we offer.

The tools to get this debate under way are with us. We have ways to talk and collect data that were unimaginable a few years ago. The postbox has been replaced by the send button on our phones and tablets, we are able to participate while sitting on a bus or waiting at the hairdresser.

If we really want to engage Britain in a debate about funding for our later life, we need a proper centralised platform for debate. I urge the political parties as they prepare their manifestos for 2015 to consider including this debate in their deliverables.




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We need to know ourselves to plan the future.

IMG_4710For all the  talk of tax, longevity, inflation and investment returns, the technicalities of retirement  planning are of secondary importance.

In this article , I put these technical issues in a broader perspective. If we are to have sponsored financial education in this country, it needs to concentrate on what really matters to ordinary people, not what matters to us as pension technicians.


The first thing about yourself you should know

Know what you get from the State!

The first big asset all of us will own at retirement is our right to the basic state pension, estimated to have a market value of £175,000 when paid in full. Amazingly, few of us have a clue whether we’ll get the full state pension and what we can do to top up to the maximum.

But Government promise you to answer these questions if you take the trouble to fill out a BR19 which you can do online. The link is here.

The second thing about yourself you should know

Know what you can get from your house!

The second big asset most of us will have in retirement is the equity in property. You may not be able to buy a sausage with a brick- but you can release income from property either by selling it or by mortgaging it using something called equity release.

The attitude we have to our property is complicated by issues around inheritance and the emotional attachment we may have to the house, the area and the lifestyle we have become used to.

It’s easy enough to know what your house is worth if you sell it- it’s very hard to work out how you can realise this money.

The third thing about yourself you should know

Know what you can get from working!

The third big asset we all have (though we may be reluctant to use it) is our ability to work. Most people do some work in retirement. For many of us, work is a retirement no-no, for many others it is a hobby and for some it is a necessity.

Before we even start thinking about complex things like annuities and income drawdown, we have to think through how secure we feel about the future and whether we can trust our big assets. There may be other assets we can fall back on- a business, investments and bequests, all of these need to be factored into our thinking.


This is more about emotional than financial intelligence

It’s only after we have worked through these questions (many of which need more emotional than financial intelligence) that we should start thinking about pension income.

Income we have from employers schemes (guaranteed by the employer) is easy enough to understand (even if it’s not easy to remember who you’re owed money from).

Savings built up in non-guaranteed schemes (known as DC) are not so easy to understand as income. These are the savings that you will have to make decisions about; decisions on whether to buy a guaranteed income (annuity) or a non-guaranteed income (drawdown) or pay some tax and have the money sitting in your bank account.

But let’s put all this in perspective. For most people, the savings they have in DC is unlikely to be their big deal. All the stuff around the State Pension, Housing, Work and other investments all come first in our consideration.

Which is why it is so important that people start thinking about what retirement will be like for them before taking decisions.


How we can help people better understand these things

Emotional intelligence is more about feelings than facts. And knowing how we feel is something we get better at as we get more experienced. Setting aside the time to talk through these things with ourselves and partners is a really tricky thing to do.

Almost certainly some of the questions we must ask will be uncomfortable both in the asking and in the answering.

The Guidance Guarantee at retirement will be a great help

By comparison, doing the Maths is quite easy. Which is why I think the Guidance Guarantee is such a good idea. Giving people a quick session that deals with the maths around the DC options is not going to do much in itself. But this meeting is the focal point that enables the big picture items to be properly understood.

I think we’ve got to do some reassessment of how we think about our retirement planning, the financials cannot drive everything, we have to start with what we want and to do that we have to know ourselves.  These basic life skills cannot be taught, but we can help people frame their thinking by giving them some help.

What we do at First Actuarial

Increasingly in our work at First Actuarial, we are understanding these different perspectives and recognising the importance of emotional intelligence in this complex area of planning.

We organise financial education sessions at people’s places of work; our customers are employers who think these sessions are worth paying for.

If you would like to discuss how we go about this and how this might help your organisation in talking to its staff, please contact me at or my colleagues Peter Shellswell or David Joy who have the same protocols.




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Why Steve Webb took a punt on CDC


To answer the question we need to understand the Government’s primary agenda; – to “win votes”. A secondary agenda is to “create a legacy by which it will be judged favourably”. If you are charitable, you might include a third agenda, “to make a lasting difference to the welfare of the citizens”.

For Steve Webb, the prospect of 2015 is interesting. While his party has suffered (as all predicted it would), he is probably the most successful of Liberal Ministers within the coalition at driving through his agenda, achieving popularity within and without his department and operating smartly.

Not for Steve, the risks of question-time and of the populist politics that have brought down many of his colleagues. He sticks to the knitting. Webb has not been overly partisan in his approach and has thus maintained the support of his Tory boss (Ian Duncan Smith) and the coalition as a whole. Even the Treasury seem to respect him- a long-time since any DWP minister has got that

On the face of it, the introduction of CDC, at this late stage of the parliamentary term appears an uncharacteristic risk for Webb. As auto-enrolment was for him, so CDC will be for whoever takes on the pensions brief in 2015- unfinished business.

But whereas auto-enrolment was readily understandable as a means of including the great pensions unwashed, CDC’s purpose is harder for the public to understand. Relative to the relaxation of rules on annuities in the Budget, it has not exactly grabbed the popular vote!

Is CDC a political risk?

Certainly CDC will not re-ignite the liberal party!

But I don’t think Webb is playing to the primary agenda (he has done his bit by cheekily  taking the credit for the Budget ).

I think Webb is thinking much more about establishing his legacy and maybe he is actually trying to do something to restore the long-term credibility of “pensions”.

This, in “political” terms, is why Webb introducing CDC.


What’s it for?

Of course he doesn’t get the Queen to call it that- she has to talk about Defined Ambition but DA is CDC and in the detail, CDC is about three things;

  1. Introducing an alternative to annuities that plugs a market gap (there is no mass market alternative for DC savers at present
  2. Protecting consumers from inappropriate products- Webb has repeatedly said he does not want to see retail solutions solving institutional issues (and he’s pointing a finger at advisory drawdown).
  3. Offering an opportunity for some defined benefit schemes to take risk from their sponsor’s balance sheets.

Webb likes to talk about the project as “Defined Ambition”. Items (1) and (2) are not (politically) ambitious; certainly they are not as difficult to execute as “pot-follows-member” or some of the “transferrable annuity“ ideas he was knocking around before the HMT ambush. He is going to get support from the consumerists and especially the press is he can convince them CDC does something about rip-off pensions.

Item (3) is considerably more ambitious; the Dutch CDC model was after all a way out for many Dutch employers who could not hack the costs of a marked to market DB funding regime. Already noises are being made about “New Brunswick”, a Canadian municipality that switched its pension from DB to CDC for the same reasons. His mooted appointment of one of the politicians who engineered New Brunswick, suggests that Webb may be paddling this Canadian canoe!


Why do we need more legislation?

At a more detailed level still, it was becoming increasingly obvious that the Bridge case was making it pretty well impossible for any organisation, employer or provider sponsored, to develop Target Pension plans. The Alliance Bernstein “Retirement Bridge” has been on the slipway for some years now and someone is going to have to “kick the chocks” for it float. The Bridge problem is that as soon as you set the target, that target is interpreted as a promise- at least by the British legal system. Promises are defined benefit and need to be funded as such, pay levies and sit as risks on somebody’s balance sheet.

Hopefully the new legislation will be cleverly enough drafted so that it makes Bridge and much that the Bridge judgement was based on, irrelevant

What we think the legislation (which we hope to see soon in draft) will do, will be to transfer the funding risk from the sponsor or provider to the member. While this is of course what conventional DC does, Webb will argue that the member’s protections have been reinforced by CDC schemes embracing the standards of governance, transparency and value for money, introduced in his Command Paper “Further Measures for Savers”. Defined Ambition is a sugar coated pill. Its detractors argue that it is no more than a placebo and that DA is no more than DC by the back door.

Ensuring that the public can be convinced that DA and DC are different is Webb’s biggest political challenge for the rest of his term.


Maintaining the consensus

If he succeeds, Webb’s legacy will sit fairly on four legs;

  1. He has successfully reformed the state pension scheme, creating a platform on which he can introduce private pension reforms
  2. He has introduced auto-enrolment and legislated to make auto-enrolment schemes fit-for-purpose
  3. He is creating a third-way pension that can be used (alongside the PPF) to sort out the problems with legacy DB plans (including perhaps taxpayer sponsored plans)
  4. He is creating a third-way pension that can fill the gap not served by annuities (or retail drawdown products). Essentially he is returning the payment of pensions to schemes.

Though there are many within the DWP, who see the Budget Reforms as a political smash and grab raid, Webb is far too a politician to be outflanked. He has struggled for years with the Treasury’s Government Actuaries who have implacably opposed the relaxation of DB or the introduction of DC Target Pensions. Ironically, GAD’s own minister has made further resistance futile.

Steve Webb should be commended for seizing the opportunity to give Britain the quality pensions available to many of our Continental neighbours. I doubt that he will be the Minister to oversee their implementation but am hopeful that if that person be Gregg McClymont ,these four legs of Webb’s pension strategy will be maintained. I think Webb and McClymont are from the same stable and are driven both by political ambition and a genuine interest in improving welfare.

I fear the threat to pensions by the far right. I see pensions as easily being chucked out in the “red-tape” box and I probably speak for the industry in this (if nothing else), we do not want to see unravel the consensus that Webb has established. The danger of trying to de-rail CDC is you end up de-railing other things!

For me, supporting CDC makes total sense. Integrated into the rest of a well-thought through pensions strategy, it will be a tool that may help us address some of the remaining problems in our pension system.


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Why Face to Face Guidance may be impossible.

Face to face   I didn’t know what to expect from the Life Planning Association, whose meeting I attended on Wednesday as a guest of Wladek Koch.

What I got was an insight that makes sense of why I believe Face to Face communication is both the most vital and most dangerous means to communicate.

After a number of sessions we were asked to break into groups of four to discuss something or other.

Our group contained two vocal people,myself and one other, a woman who spoke very little but who connected with all of us with the intensity with which he listened. She seemed eager to hear every word but I noticed she was studying the faces of each person as he spoke.

The conversation turned to face to face advice and she remarked quite brilliantly that we had all said much more by the tone of our voices , our facial reactions and our postures than we had with words.

“Could we have understood our positions as well on the phone?” I thought

C-clearly a high percentage of the data she was imputing was visual and all this would have been lost

“Could we understand our positions as well on a webcam?” . I remember a lecture at college called “the tyranny of the cinematic eye” when a play write explained that when he directed a film, he imposed a single view on his audience, when he directed a play, the audience saw what they chose to look at.

The lady explained that she thought it impossible for genuine conversations to happen without opinion being given and that the opinion was often expressed through something so subtle as a sidelong glance.

For this lady, advice was inherent to face to face conversation. The idea of face to face guidance was simply too two-dimensional for the kind of conversations she engaged in.

For her, the only way to neuter advice was to reduce the intensity of the communication by reverting to webcam,telephone, even on line chat. These mediums promoted information over opinion and though less effective, did at least de-risk the process.

Our group conversation turned, as so many pensions conversations do, to the question of guidance.

That day we had been shown the Queens Speech where the agenda for the guidance guarantee is laid out in the DWP’s Pension Bill.  No mention of face to face advice is contained in the DWP’s press release so I’d got on to my Treasury Maven Jo Cumbo, who’d phoned the Treasury Consultation Group and got this back

So no plans to change from Face to Face guidance.

George Osborne famously could not distinguish Advice and Guidance and it seems my expert life planners considered it impossible not to give advice, at least face to face.

The reality is that we almost always take away from every face to face conversation we have, a clear impression of the position of the other. Where we cannot get a sense of that position is where such barriers have been put up, that we get angry and frustrated

“I couldn’t get through to him”, “she was giving nothing away”.

I suspect that if these were the reactions we got from a face to face guidance meeting, we would think the meeting a failure- no engagement had occurred.

But compare

“we were really on each other’s wavelength”,  “I sensed she was on my side”.

These would be statements of success to most people but they are also deeply concerning to a Regulator.

The simple truth is that Face to Face establishes an emotional bond between two people- trust! The bond is established as much by how you listen as what you say and you listen with your eyes as much as your ears.

What people hear is not information, it is emotions like “concern” “disinterest” “distrust” or “trust”, these are what can be read face to face.

George Osborne was right- there is no such thing as Face to Face Guidance.

We are always advising, if we did not , we would not be having a face to face conversation.

The DWP can, once they take over the reins of the guidance process , go one of two ways.

1. They can push the guidance recognising that guidance really only happens in a non-emotional (eg non face to face environment) and push for these guidance sessions to be delivered in an emotionally sanitized environment (phone,Skype, on-line decision trees etc._ or

2. They can push face to face, (which will be far more expensive and have far more impact). But they need to recognise that whatever rules they apply, as soon as an emotional bond is created – advice will be delivered.

I have said before that I consider that advice is about “delivering a definitive course of action”.

Advice is a recommendation of what to do.

As the lady in the group session demonstrated, you can give advice without opening your mouth. No amount of meeting records can document what people saw, what people heard and how they heard it.

There is no defence for someone who tries to give guidance but is heard to be giving advice, for in the complex ratiocination of a face to face conversation what is meant as guidance is heard as advice.


If the FCA/DWP/Treasury want to regulate the delivery of guidance, they need to avoid Face to Face. Otherwise they must accept that whatever they want to be delivered as guidance will be taken as advice with all the pitfalls that entails.

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The Queens Speech; the sausage sandwich game – for pensions!

downloadThe Pensions Reforms in the Queens Speech had been broadly flagged in the Sunday Telegraph and subsequently.

Nonetheless, the inclusion of Defined Ambition Pensions (aka CDC) (aka Target Pensions) is still a major surprise and will further stretch the UK pensions industry (who may have to become industrious).

Here’s how HMG’s press release announces the two Pension Bills

Its centrepiece: ground-breaking pensions reform. The reforms we plan will be the biggest transformation in our pensions system since its inception, and will give
people both freedom and security in retirement. By no longer forcing people to buy an annuity, we are giving them total control over the money they have put aside over
their lifetime and greater financial security in their old age.

It’s all part of our wider mission to put power back in the hands of the people who have worked hard – trusting them to run their own lives.

At the same time we’re completing sweeping reforms to workplace pensions to give employees more certainty about their income in retirement. Taken together, this is a revolution that matches our previous reforms to education and welfare in giving people opportunities they were previously denied.


Note the juxtaposition of the DWP’s DA agenda to the Treasury’s new annuity framework. We reckon the Government have worked out they can’t lose annuities without having something to put in their place- step forward Defined Ambition Pensions.

For Geeks interested in the full text published so far, here is the link  that Alan Higham kindly released on twitter


I append by means of that well know journalistic device “cut and paste”, edited highlights

The point of the Bill is to;-

Enable ‘collective schemes’ that pool risk between members and potentially allow for more stability around pension outcomes in retirement.

We’ll now have three types of pension DB, DC and DA

The Bill would make provisions for a new legislative framework in relation to the different categories of pension schemes. It would establish three mutually exclusive definitions for scheme type based on degrees of certainty in the benefits that schemes offer to members.


These will be distinguished by recourse to Danny Baker’s “sausage sandwich”methodology.

The Bill would define schemes in terms of the type of ‘pensions promise’ they offer to the individual as they are paying in.

A scheme would be categorised as a Defined Benefit scheme, a Defined Ambition (shared risk pension scheme) scheme or a Defined Contribution scheme, corresponding to the
different types of promise – full promise about retirement income a promise on part of the pot or income, or offering no promise at all.

The Section also contains a rehash of the original Treasury promise on the Guidance Guarantee (again juxtaposed to the DA stuff). This now seems to be in the DWP’s Bill which suggests that the Guidance Guarantee is moving into Steve Webb’s purlieu.

Certainly this is good news for TPAS who are keen to have control of this project and suggests that the delivery may well be more a DWP than a Treasury controlled affair.

The new rubric makes no mention of Face to Face- no doubt Gregg McClymont will pick up on this in the debate to come.

In the opinion of the Pension PlayPen, any guarantee of guidance that does not guarantee F2F is a down valued guarantee.



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CDC – how it could work!

target pensions

There will be a new choice for those  who want control of how they spend their retirement savings.

The choice will be a Collective Defined Contribution (CDC) Scheme. CDCs  offer a  target pension which we reckon will deliver a predictable lifetime income without the guarantees from an insurance company or an employer.

Employers can set  up these schemes  , asset managers and benefit consultants can set up these schemes,  insurers and  master trusts like NEST, NOW will almost certainly set up these schemes.

But why are they needed?

The annuity changes announced in the budget will allow people to choose how they want the pots they accumulate over their lifetime to be paid back to them as they want.

Some people will choose to take their cash and spend it, some will set up their own investment portfolios and have the money managed by someone they choose (which might be themselves).

But the vast majority of people do not want to manage their money. They want an income in retirement that is paid to them according to their needs.But they do not want to manage the money in the meantime.

CDC schemes are there for this group of people. Nearly 90% of all pension savers use the default investment option offered to them. We do not know that as many will choose a default investment option for their money in retirement (we think not), but we believe that the behaviours of people don’t change radically, just because they’ve started drawing on their pension savings.

We think that well over half of all those drawing their DC pots will use these kind of schemes.

There is nothing very new about CDC schemes . They will actually work as a cross between defined benefit and defined contribution schemes and to people using them, they will feel like company pensions.

With one important difference!

When you are saving into a pension plan these days, your employer is (or soon will be) required to pay in to your plan as well – this is known as “sponsoring”.

Currently, for a plan to be set up to pay pensions out, there must also be a sponsor, someone who will make sure that a defined benefit is paid to you  month after month, till the day you die.

But this creates an impossible burden on employers. And employers are increasingly walking away from these obligations- closing their schemes to new hires and making sure they aren’t any more on the hook than they have to be by “closing schemes for future accrual”.

It’s the same for defined benefit and defined contributions

It’s long been recognised that paying a pension from a very big pot is much safer than doing it from an individual pot.

Infact until the budget reforms changed this , you needed around £250,000 to have any freedom not to have to buy an annuity (and to get real freedom you needed at least twice that).

But if employers tot up all the little pots of their employees , they can find they have quite large super-pots (Lloyds Banking Group for instance has well over £2bn of DC pots they manage for their staff).

For some large employers, it makes sense to offer these staff a collective defined contribution plan, not because they have to , but as an employee benefit.

But until today, that would have meant that the employer (the sponsor) would have had to have guaranteed the “monthly payments to death” through to retirement. This is because of a troublesome legal case surrounding the Bridge Trustees (which we needn’t go into because it doesn’t matter now).

Now a large employer can set up a collective scheme simply to pay out pensions for staff without being on the hook for markets and for  people living too long.

Some large employers will want to do this and they’ll want to do it for the same reasons as they provide health insurance, income protection and (historically) defined benefits. They’ll do it because it is an employee benefit, because they can and because they recognise that it’s in their DNA.

But it’s not in the DNA of most smaller companies – let alone the micros and the self-employed! Nor is it in the DNA of those who set up Group Personal Pensions and master trusts. No one can afford to sponsor these arrangements if the price of sponsorship is to be on the hook for everything that goes wrong.

But this is not just for employees of  large companies- everyone can participate

But this is where CDC works not just for large employers, but for those who currently run multi-employer schemes for small employers (and the self-employed)

As well as single employer CDC schemes , we will see schemes which anyone can tip their money into. Let me give you an analogy…


Imagine you grow grapes on the sunny hill-side in Umbria, in your local village there is a co-operative who will take your grapes and turn them into wine. You bring them grapes, they give you wine, and if you bring them lots of grapes, they promise to give you wine for the rest of your life.

This is how collective defined contribution schemes will usually work.

Substitute for “village” “provider”.

Your pension provider – L&G, NEST, NOW, Standard Life or whoever, will offer you the option to convert your pension savings into one of these collectives and offer to pay you back your money at a pre-defined rate.

That rate isn’t guaranteed – it is targeted (some people call these Target Pension Plans). Insurance companies and master trusts are no more prepared to guarantee people lifetime incomes from fully invested funds than large employers – but they very much want to provide pensions on a targeted basis.

How they manage these plans is up to them but – as with single employer schemes- these plans will be subject to tough rules, they will need  top management, sound investment strategies and they will be under the utmost scrutiny from everyone from the Pensions Minister to the Pension Plowman!

chart 5

Some of these plans may revert to an investment process similar to the old with-profits, some may use dynamic asset allocation, some may used structured products provided by banks. Some will work better than others.

We think it important that everyone has the choice to join one of these.  We think that those who provide pensions on the way up, will be offering continuation options to manage your pot as you spend it. (see the graph above)

We also think some new pension providers will arrive simply to offer CDC for those in retirement.

You may favour one approach over another, you may want to take guidance as to the pros and cons or you may want to be advised as to which approach is best for you.

And for many people, a default continuation option from the provider they have saved with, will suit them fine. Provided there is a quality assurance attaching.

So you will have more choice- but also a simpler choice.

1. Cash-out

2. Annuity

3. Standalone CDC Scheme

4. CDC scheme of your provider.

Frankly 3 and 4 will operate like the old annuity purchase system. Many people will stay with their provider, some people will think they can do better elsewhere (open market option)

Moving money from one scheme to another is not “free”, you sell out of one fund and buy into another and you trigger expenses which you’re going to have to pay from (within your fund).

But that said, the decision you take on what CDC scheme to use -need not be irreversible and unlike an annuity, you could switch from one CDC scheme to another.

So we have more choice- but one simple choice- to stay where we are (option four)

Why CDC makes long-term sense for this country

Dispensing with the guarantees, clubbing together to provide economies of scale, rationalising advice and pooling the risk of living too long, give Target Pension Plans the opportunity to boost pension pay outs by up to 50%.

This is recognised not just by the European pension systems that have adopted this approach but by our own Government Actuary who accepts that the cost of converting  savings into income is about 60% that of buying an insurance annuity. If you don’t believe me , read this.

What’s more, CDC encourages long-term investment in businesses and help pension funds realign themselves as the providers of long-term capital to the key drivers of the British economy, our manufacturing and servicing industries.

For four years I have been blogging, berating and generally bleating to Government to make these changes. I have argued that NEST should be a Target Pension, I have railed at the tyranny of annuities and I have shouted out loud for the freedoms which the two bills in the Queen’s Speech give us.

Sure these Target Pension Plans will not provide the security of guaranteed annuities or even employer sponsored defined benefit schemes. Sure there is much to be done before we can deliver the finished article, but I reckon this further freedom is the missing piece of a  jigsaw that includes better workplace pension savings plans, an upgraded single state pension and the new annuity framework.

Some thanks

I’m now going to ask you to raise your glass  to David Pitt-Watson who has done so much to make this happen and finally I am going to toast Steve Webb MP.

Raise you glasses too to Kevin Wesbroom, Robin Ellison,Con Keating and Derek Benstead, champions of Target Pensions.

Finally I’d like you to raise your glass to the Queen- God bless you ma’am!

It is almost exactly four years since the Coalition came together. On May 10th 2010 I wrote a blog- we need to do something about annuities, the next day I wrote another about the formation of the coalition which I entitled “all changed,changed utterly, a terrible beauty is born“.

Raise your glasses to Steve Webb our Pension Minister and architect of CDC legislation.



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Ten mistakes CDC cannot repeat.


CDC (Target Pensions Plans)  look likely to happen

If, as now seems likely, we get the easements in a Pensions Bill to run collective DC schemes then the pressure will turn on those (like me) who have lobbied for change- to deliver results. As Nick Clegg has found, it is easier to make friends when you don’t have your hand on the tiller, it will be even harder to win trust in CDC with the public than it has been with Government.

But it needs to win the public’s confidence

To understand where the distrust of a collective system of pension payments arises, we have to travel back to the mid 1980s. Britain was coming out of a dark place economically and there was an assumption of high inflation and high interest rates which made the cost of pensions look cheap. Without the need to guarantee anything, companies rushed to set up and over-fund defined benefit plans which were seen as a panacea for all HR and Finance ailments. Pension schemes could pay off workers early, recruit staff and reward the chosen few within a benign tax and national insurance framework.

Companies also used these schemes as a potential source of finance, as a tax shelter and even as a means to hide embarrassingly high levels of profit.

In fact the last thing on the minds of those managing the benefits was the long-term cost to the company, actuaries and regulators gave a green light and you drove the car where you wanted.

The failure of governance that evidenced itself in over-generous benefit promises, under-funding through the taking of extended “pensions holidays” and the reckless disregard for risk controls within the management of many funds, led to the downfall of what Frank Field called in 1997 “Britain’s economic miracle”. Indeed it only took a couple of years of poor investment returns in the early noughties, to expose the crass mismanagement of the past two decades.

If CDC is to follow the same path, I will have nothing to do with it

Another thing happened in the late 1980s, we saw the beginning of a mania to purchase houses, initiated by Thatcher economics and driven by relaxations in credit which allowed us all to borrow up to 100% of the value of the property.

It was also a time when insurance companies moved from guaranteeing the repayment of the loan, provided premiums had been paid (non-profit endowments) to sort of guaranteeing repayment (with-profits) to a total market dependency (the unit linked endowment).

In theory endowments worked well. In practice they were doomed to disaster. The high sales commissions paid to advisers meant that the net returns on investment within the with-profit and unit-linked sectors had to be heroically high. So long as stock-markets boomed , no-one noticed.

But as with the defined benefit schemes, the early noughties exposed endowments for what they were, inefficient and dependent for their survival on unsustainable actuarial assumptions.

If CDC is to follow the same path, I will have nothing to do with it.

If you read the tweets of John Ralfe and John Lawson, you will be offered comparisons between CDC and the failures of financial products such as endowments and defined benefit pension schemes.

For them, the certainty of a guaranteed annuity or a defined benefit scheme with liabilities fully matched by AAA rated bonds is the way to avoid the mistakes of the past. But the public know what these products mean. Annuities mean the certainty of poor outcomes while the cost of guaranteeing company pensions is felt in the loss of future productivity needed to provide pensionable employment.

This is the world of grey squirrels, where red squirrels are driven out and the forest denuded of value.

We must be ambitious, we need to define our ambition and meet the challenge of doing this funded pension thing properly. We must learn from the past and here are the ten lessons that the experience of the past 30 years can teach us

The ten lessons we must learn

  1. We cannot afford to pay for pension distribution; people must come to pensions not be sold them.
  2. We cannot afford to guarantee promises, we must accept a degree of uncertainty (as we do with our jobs)
  3. We must have a proper debate on risk and get people to understand the trade offs between risk and return
  4. We must harness the economies of scale that come from bringing large numbers together in a common endeavour.
  5. We must invest together , spend our savings together and enjoy common administration and common governance.
  6. We cannot allow those who govern our pensions to be conflicted - governance must put the members interests first.
  7. Putting member’s interests first includes taking long-term views and ensuring suppliers can do likewise.
  8. We must encourage people to participate in  insurance pools, this means encouraging social insurance but does not mean exploitative risk transfers
  9.  We must encourage people to think long-term and be mindful of future liabilities (such as long-term care.
  10. We must in all things balance the needs of the individual, the State and the financial services industry to provide a sustainable system which enjoys public confidence over time.

In my view, we are ready to set things up this way. Other countries (especially the Netherlands, Denmark and Sweden) enjoy greater public confidence in pensions than we do.

We have an enormous heritage of funded pensions. We must acknowledge that we have messed up along the way, but we don’t need to throw out the baby. Much is good. We have a properly functioning state pension , a sound welfare and healthcare system and we have come a long way towards having a world-class workplace pension saving system.

CDC- the final piece in the jigsaw

CDC can and should be the final piece in the jigsaw that allows those looking for an alternative to annuities, to optimise their pension spending. The idea is not complicated, the product need not be confusing. CDC can be integrated into our existing pension framework relatively easily. It is no more than a return to the vision of pensions that pre-existed the calamities of the past thirty years.


Screen Shot 2014-03-30 at 19.23.20


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What will these pension freedoms cost the Treasury?


There appear to be two versions of the Treasury’s costings of these new found freedoms we’ll be getting post April 2015.

The first were published at the time of the budget and (with the proviso that the Treasury don’t know how people will actually behave) deliver savings that rise from £320m in 2015 to £1.2bn. per year after 2017. One quick look at the tax planning opportunities available from the new Pensions Freedoms led to a dismissal in my head of the treasury’s assumptions , do they think that the Great British Public are so stupid as to pay that much extra tax?

The second aren’t published but exist They’re the ones based on a reasonable expectation of GB taxpayer going on Money Saving Expert and working out how to draw down up to but not above their marginal tax-rates. We suggest these figures are not so optimistic (from HMRC’s perspective)

I produce an extract of a letter from the Government’s Information Rights Unit to Gregg McClymont  (with the Shadow Minister’s kind permission). Gregg had asked to see the new figures so he could make his own assessment (as you do when you are the minister in opposition).

The letter trots out the standard argument for allowing people  (including Shadow Ministers)   to know what’s going on (especially when they are being asked for their views by way of a public consultation) but concludes that..


It is worrying that a public consultation is going on without full access to the Treasury’s costings.

It is also worrying that Government Ministers feel they cannot create policy without exclusive access to the information the public are trying to consult on.

It is most worrying of all that the information in the public domain which is the information on which the public are consulting is not the information on which the Ministers are forming their policy.

In this most ” Sir Humphrey” of letters, John Sparrow of the Information Rights Unit, tells the Shadow Pensions Minister that

“disclosure of  information relating to policy formulation could  corrode the relationship between Ministers and Civil Servants”

It is hard not to agree with John Greenwood, writing in today’s Telegraph that the

“Government finds itself on the horns of a dilemma,. It will have to reduce some of the perks and attractions associated with pension savings if it is to continue to offer over-55s freedom to spend their pension pots as they wish”


What everybody is speculating about (publicly) is the loss of tax-reliefs including curtailment of tax free lump sums, higher rate contribution relief and extensions of the restrictions on pension capital (lifetime allowance).

What nobody is talking about (publicly) is what the long-term cost to the country will be if a substantial wedge of our pension savings is blown on Lamborghini like fripperies in the early years of people’s retirements.

Somebody has to pick up the bill for long-term care and for the dependencies of extreme old age. If it is not the pensioner- it must  be the taxpayer; an inter-gernerational transfer that may not play so well on generation Y and beyond.

Clearly these are the kind of debates that are being had behind the doors of the Treasury (which John Sparrow is at this moment locking).


I’ll shut up now , I think I can hear someone at the door….(they are wearing black leather costs and carrying guns).

Here is the stuff that we – the public - are being fed. Be aware this is not be the same as the information on which decisions are being taken by Ministers (taken from the budget costings published on this link

Post-behavioural costing

The costing depends upon an estimate of the number of people who make use of the additional flexibility. This leads to an increase in income tax received in early years as individuals will now pay tax on the withdrawals from their pension pot. Because more people make withdrawals there will then be reduced income tax on annuity pension payments in later years.

The proportion of pension pot holders who choose to make early withdrawals is forecast by estimating whether an individual would have a preference for present income over later income.

This preference is estimated using information on individuals’ current financial positions using data from the Wealth and Assets Survey. It is affected by their indebtedness and the returns available on investments outside the implied returns of annuities. Other factors which may influence take-up include individuals’ preference for liquidity and their tendency to stick to default options, which affect take-up in opposite directions.

It is estimated that around 30% of people in defined contribution schemes will decide to drawdown their pension at a faster rate than via an annuity.
Over the first 4 years of the scorecard period it is also assumed that there are additional
withdrawals from the stock of pensioners currently within capped drawdown. This further
increases income tax received over this period. Adjustments are also made for the higher costs of pensions tax relief to reflect the increased attractiveness of pension savings for some individuals.

Post-behavioural Exchequer impact (£m)

2014-15      2015-16      2016-17      2017-18         2018-19
Exchequer impact        -5                 +320           +600         +910            +1,220

By allowing individuals to flexibly withdraw from their pension pot, this measure results in
increased income tax receipts in each year until 2030. After that, a small reduction in tax receipts of around £300 million a year is expected in steady state.

This is small in comparison to the impact of all the government changes on pensions, designed to ensure pensions provision is sustainable with an aging population (notably the increase in State Pension age), which means by 2030 the government is saving around £17 billion a year in 2013-14 terms compared to previous policy.

Areas of uncertainty

The main uncertainty in this costing is the number of individuals who will withdraw additional wealth when their pension pot is crystallised.


Thanks to Jo Cumbo of the Financial Times who drew my attention to the dodgy dossier that Gregg was denied access to.

I haven’t read her version of the story but I’m sure it is brilliant (though you need to be a subscriber) it can be found here.


This article first appeared in

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As for saving- our kids could be teaching us!

Alvin PF-MLewis_2117863b ros_altmann-260-x-175


The punters just do not want what the pensions industry is trying to sell them


These are the words of the financial editor of the Evening Standard, Anthony Hilton.

Hilton expresses his frustration not at the public but at a section of the financial services industry that refuses to accept it can be wrong.

At a pensions event recently, speaker after speaker noted the reluctance of the public to buy pension products, as a result of which their ability to live comfortably in old age might well be much diminished.

Various short term fixes were suggested, revolving around the restoration of trust in the City and the financial services industry.

What was needed most, though, according to the majority of contributors, was a major push for significantly better financial education in schools so people would understand why they had to save.

Hilton then questions just what this education is before and concludes that its motivation may be more “Soviet than City”. He is saying , what this blog has been saying, that it is not the punter but the product that is wrong.

The financial services industry is very poor at giving people what they want, rather than what it finds easy to supply.

Hilton argues that as a society we are less deferential, more demanding and we expect simple solutions to complex questions. In this world judgements are increasingly emotional rather than rational.

He develops this argument to distinguish between the loss of intellectual trust (for instance the trauma of fund managers in discovering that all asset classes correlated to zero in late 2008) to the loss of emotional trust in the system itself..

for the last 30 years financial services have been about selling to customers products which they do not really want to buy and the rewards to the firms have consistently been much fatter than the rewards to the customers.

And he concludes that until emotional trust returns, the public will not use the products to anything like the extent the  pensions industry would like.


Who can retain trust in saving? – those who teach us how to spend!

I had the pleasure of meeting Alvin Hall , the American financial educator last week, we discussed this question of trust and his take was that the reason Martin Lewis can touch so many is that he is seen to be “on people’s side”.

Lewis , Hall, Altmann and other “consumerists” have two things in common - they get people to believe they are on their side and they use mass media. But very few people can do this as skilfully as these three- I know I cannot.

Just because you’re good at pensions doesn’t make you trusted

Speaking with a friend in financial services whose company is running financial education in schools how things were going, he said on Wednesday that he was encouraged his program now had the interest of Towers Watson and Hymans Robertson.

I suspect that the support of those two colossi of actuarial consultancy would not cut much mustard outside the narrow reaches of the City that he operates in.

When I went to the digital version of Anthony Hilton’s article, I found it had had 62 views, there may be a few more than that who have read the article in the Paper.

But over 11m people read Martin Lewis’ newsletters , Alvin Ros and Martin are recognised in most living rooms in the land.

Anthony Hilton gets some pretty good “views” in the Standard but not so in Pensions World.

Restoring confidence in pensions means abandoning our old ways and  accepting that Anthony Hilton is right and we are wrong. The pubic are not buying it any more, they lost trust in us a long time ago and do not trust us to give them a fair deal.

Ironically and are websites that encourage responsible spending as much as sensible saving.

The inevitable conclusion is that we want help in managing our money and people want genuinely independent education.


Should who should be found in financial education ?

When George Osborne threw open the doors on budget day , the NAPF were “perplexed”. They were perplexed by the freedoms on offer and I sense they are sen more perplexed that the public is showing every sign of loving their new-found liberty. People are wanting to spend on retirement again.

But all the research says they want and need help.

You do not have to be a coder to use a computer, a mechanic to drive a car and you do not have to understand investments to save into a pension. But you need to be competent to use a computer, licensed to drive a car and you’ll need help to know how to save into and spend your pension.

You are a long time spending your pension (you’ve been a long time building up the pot). Planning your income for the second half of your working life means taking into account a lot more than your pension pot, you need to what “gong right” looks like and the costs of “going wrong”.

This  means having a real conversation about risk, about the cost of certainty, the merits of cash-flow management and the need to make long-term plans as well as to manage day to day finances.

In this new world where people want to save, it is up to the financial services industry to create financial products that are genuine game-changers. Products that allow people to use their new freedoms as they want by delivering what they say on the packet.

The maintenance of the mighty investment funds that enable us to stay free should be the primary concern of the banks , insurers and investment houses.

But these are not the people we need explaining how complex financial products work.

In fact coders are the last people I want to show me how to use Powerpoint and I no more want a tyre-fitter showing me how to drive safely than I want an investment manager teaching me how to plan for later years.

Even if they are independent, most people in the City seem incapable of talking with people in a way that gets them on people’s side.

The business of education sits properly with those who the public trust- and I use the emotional as well as the intellectual definitions of trust. When Morrisons wanted to turn their staff onto pension savings they used Alvin, if this Government wants  people to understand their pension freedoms, perhaps they should think along the same lines.

More people will listen to Martin Lewis, Ros Altmann and Alvin Lee than the PMI, NAPF and SPC.

Educating kids to behave responsibly does not mean making them product experts

I am not for educating school children about the ways of the City, I think childhood should stay innocent of financial products

I am for teaching children the value of citizenship  and how to behave responsibly in a free-market. If a child asks me “should I save” , I would say “yes you should save” , but I would not recommend to the child a website on investment theory.

If kids want to find out more, they will do, they have access to everything they need on Facebook, Google and Buzzfeed.

Kids appear more natural savers than adults

All the evidence from auto-enrolment suggests that the younger you are , the greater your trust in financial services. The greatest cynicism comes from those in later years. The opt-in rates for those below 22 are high, the highest level of opt-outs is among those over 50.

This tells me that people are born free but become enchained in prejudice against saving as they grow older.

This would suggest to me we were better having those at school educating us about the value of saving than the other way round!

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Matisse cut-outs


If you can get a ticket for the Matisse “cut-out” exhibition at the Tate Modern – go!

There have been two shows at this gallery that have moved me beyond words- one was the Rothko retrospective some five years ago- this is the other.

A picture is worth a thousand words so this blog will be about the pictures and not my reaction.

But I was struck by one observation by Matisse about these works . He mentioned that his pictures should work like music- not on the intellect but on a purely emotional level.

TS Eliot wrote tbat poetry should aspire to the fixity of music, a phrase I took to mean that it should have an emotional impact (as well of course as challenging the brain).

Making sense of these pictures is easy in emotional terms – but hard intellectually- these pictures are hard to explain.

Thanks to the kind people at the Tate who looked away as I clicked my way round the gallery. Thanks to Linklaters for making it possible for me to see these works in the quiet of a Tuesday evening.

I am flying now to Nice where I will be seeing the museum and the church that add the light of the South of France- the only thing missing from a wonderful exhibition.


“By creating these coloured paper cut-outs, it seems to me that I am happily anticipating things to come. I don’t think that I have ever found such balance as I have in creating these paper cut-outs. But I know that it will only be much later that people will realise to what extend the work I am doing today is in step with the future” -Matisse
IMG_4700IMG_4701IMG_4683 IMG_4686 IMG_4687 IMG_4689 IMG_4691IMG_4694IMG_4710IMG_4711IMG_4682IMG_4712It is no longer the brush that slips and slides over the canvas, it is the scissors that cut into the paper and into the colour. The conditions of the journey are 100% different. The contour of the figure springs from the discovery of the scissors that give it the movement of circulating life. This tool doesn’t modulate, it doesn’t brush on , but it incises in , underline this well ,because the criteria of observation will be different’- Matisse



“With my eyes wide open I absorbed everything as a sponge absorbs liquid. It is only now that these wonders haveIMG_4734returned to me with tenderness and clarity”- Matisse



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“To and through retirement” – turning our savings into pension.

debt relief


Ladies and Gentlemen, here’s the new buzz phrase, direct from the US of A.

“To and through” retirement strategies simply lengthen the horizons of the investment managers from an arbitrary end point – (the fixed or selected retirement age), to the point where money is last needed (death).

Morbid as it sounds, it is the unique feature of pensions(as opposed to ISAs for instance) that it seeks to insure against living too long.

Predicting how an individual will spend money in retirement is a mug’s game, though studies of large numbers (Bristol University has recently surveyed 20,000 Brits in retirement) can allow us to generalise. So we hear consultants now talking about the “U-curve” of spending (as if they were experts).

Overlaying general behaviour onto individual circumstances is of course what happened when it was prescribed people had to annuitise their retirement savings from money purchase pots. It didn’t work and nor will over dogmatic products that require people to have income paid to them as some academic, fund manager or insurance company deems fit.

In this sense, the idea of collective DC is stillborn. Individuals will have to have the capacity to spend their cash as they wish and if that means turning up the spending beyond recommended limits so be it. If I drive my car at 7000 RPM for long periods I will burn out the engine and the same will happen to people who overspend in the early years.

But in another sense, collective DC is very much alive. A general fund which people participate in ,have specific rights to which is managed for “people like you” has great advantages over an individual “drawdown” arrangement.

Elsewhere we have referred to such funds as “target pensions” as they allow those within them to target certain levels of income with a higher degree of certainty than they could were they simply investing on their own. The wins are about economies of scale and the capacity of fund managers to do clever things like cap volatility and/or use dynamic asset allocation to reduce the chances of you running out of money.

To use the parlance of the IFA, to prevent “pounds cost ravaging”.

Of course we would be very silly indeed to suppose that the current average private pension savings of around £30,000 is going to be much of a factor for those retiring today, the basic state pension, if paid in full is worth around 6 times that and compared to the value of the in retirement housing stock, there is as much money again in people’s personal wealth. Add to this ,people’s personal earnings capacity and you can start constructing graphs like this (from Kevin Westbroom of Aon)

Screen Shot 2014-03-30 at 19.23.20

Or construct fantasy retirement strategies like the one below

Screen Shot 2014-03-30 at 19.25.09


All this is by way of a prologue to the main course of today’s blog, which is a lesson I was taught by a clever man who runs one of the largest DC funds in the UK.

He didn’t do the research, it was done by an investment house in the US called GMO Wooley, but he introduced me to the phrase “to and through” and he is the first non-professional DC pension trustee I have met, who has a stated aim of providing a means for people to spend their DC savings.

Here’s how the yanks explain it…..

We start with a wealth target- the amount of money we hope to have to meet our post retirement needs. Frankly we live in hope, in this example we are hoping that our savings get a real return (eg beat inflation by) 5.1%, because we’ve worked out we’ll need $650k or thereabouts


What follows is the spending of the money (or consumption) as the boys from GMO have it. The red line is what happens if you just spend from a bank account (without interest and the black line shows what happen if you consistently got 2.8% more than inflation on your money (being a bit more cautious as you are in spending mode)

So once you’ve marched up to the top of the hi, you now have to march down again

consumption alone


And if you put the journey up and the journey down together, you get a picture that looks like this.


chart 5

If anyone’s climbed a mountain, they’ll know that you have to take more care on the way down than on the way up, the injuries happen when you are descending and lose control.

The graph below shows you why financial injuries happen.

us market

If you take some money out when you are above the black line, you’re laughing! If you take money out when the blue line is below the black line you are “pounds cost ravaging. So how do you find a way to minimise the times when you are below the line. If you are Schroder you run with a variable volatility cap, if you are these guys you show things by turning things on their head.

Dynamic ESF (Estimated short fall) prevention, is simply a technique where you are investing in things which do the opposite of equites when equities are doing badly and equiies rather than other things when equities are doing well. The timing is of course critcal and you shouldn’t try this at home.

What this graph shows that you should have owned loads of


So by adopting this nifty investment strategy, you get to $0 a lot later and shouldn’t run out of dosh until you’re old enough not to know what to spend it on. (red line for the lucky dynamic investor)


Dtnamic v static


“Liftetime runin” is a charming phrase the yanks have dreamt up to describe what it’s like when your money runs out.

But it’s a useful phrase to focus the mind on the acceptable level of risk someone is prepared to take with their savings.

Lifetime ruin

My wise friend Morten Nilsson, pointed out to me that we live with uncertainty over our income all our working lives, the only time we demand certainty is from our annuity when it becomes a holy grail.

Simulations of the model that Shiller & Co have produced going back to the 19th century suggest that even if their ESF strategy was in place, ther would still be periods (most noticeably around 1950 when people would have run out of money by 95.

Ask yourself, could you handle that risk? If not, you might be asking yourself how much of a haircut would you take on your later life income to get the certainty of a lifetime annuity (and when would you lock in?).


To and through strategies are about keeping you in real assets, earning real returns without jeapordising your later life lifestyle too much. No one says that this is as secure as an annuity.

Everybody still has the chance to buy an annuity at any time/

But if you asked your boss for a guaranteed job at a guaranteed wage for the rest of your career and he said the price would be a 50% pay-cut, I wonder if you’d buy into that level of certainty.


Let’s finish with those two graphs that show the to and through. I think you are going to see a lot more of them in the years to come!




This forms the basis of a presentation I will be giving at the Retirement Income Solutions Conference on 28th May. If you are going, I look forward to answering your questions and listening to why I’m wrong!


Otherwise there is always the comments box!

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Advisory mastertrusts? – Nein Danke!


nein danke

There are now over 70 master trusts in the UK.  Everyone agrees that most are and will remain sub-scale. This is a concern to a risk-based Pensions Regulator and to others keen to restore public confidence in pensions.

The main reason for the proliferation of master trusts is the desire of advisers to get their services and “best ideas” embedded in the product. By setting up and operating the master trust, advisers can implement their consulting in the product that delivers workplace pensions in retirement.

The same dynamics are driving large actuarial consultants such as Mercer and  IFA networks such as Lighthouse. As the Regulator has said, the barriers to entry are low.  Until and unless we see the Master trust Assurance Framework in place and the Governance requirements outlined in the DWP Command Paper enacted, advised master trusts will multiply.

But come 2015 and 2016, as the governance going gets tougher, will the appetite to provide services continue? Putting your staff in an advisory master trust is a bet on the survival of your adviser’s appetite against what look significant regulatory headwinds.

Those who argue for the vertical integration of consultancy services in master trusts point to the success of fiduciary management in the management of Defined Benefit Schemes. But DC is different. In DB, the risk reverts to the sponsor (or the PPF), the risks in DC revert to the member.

Even where independent trustees are in place, conflicts of interest abound. It should be noted that many of our leading ITs are former consultants. With no independent over-site, consultants are accountable to these independent trustees- who they pay. The accountability to the sponsoring employer is minimal and I worry whether this governance model is truly robust.

These conflicts are recognised within the consultancies themselves. A recent conversation with a leading DC consultant revealed deep concern that her integrity as an independent consultant was being compromised by her having to promote an in-house solution.

For me as an external consultant, in-house solutions simply create confusion . How can I gauge what is best for my client when I cannot be clear about the adviser’s offering? My attempts to research advisory master trusts have met at best with with disinterest and at worst with hostility!

Finally the best ideas of advisers are unlikely to be better than the best ideas of those running “independent master trusts”. While consultants can point to a lack of TKU in some DB schemes making the outsourcing of scheme management to them a commercial imperative, they cannot do the same in DC.

Indeed the leading master trusts are at the cutting edge of DC “thought leadership” and are implementing world-class strategies with remarkable value for money.

In a market with strong capacity, implemented consultancy is unnecessary. Advisers will struggle to demonstrate value, will struggle with the new governance standards and will struggle both internally and externally to avoid conflicts of interest.

At a time when pensions are changing fast, we need advisers to be advising, not managing.

The number of master trusts is likely to contract over time and advisers considering establishing a master trust should take stop to consider whether the business case really stacks up.

This article first appeared at


nein danke

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Vertically integrated mastertrusts? – “my arse!”


Pardon my Scouse!

I throw Mick Royle at Mercer’s master trust (and the incipient Aon Hewitt master trust).

“Vertical integration” is where the supply chain of a company is owned by that company.

Mercer have set up a master trust where they are both advisers and product managers. This article points to the conflicts and the risks created (all of which revert ultimately to the members- who have no say in the decision to use “vertical integration”.

What have I got against master Trusts? …..nothing – they’re good

What have I got against consultant’s setting up and running master trusts?…… plenty.

Here’s why vertical integration sticks in my craw

1. It legitimises the practice and will lead to a proliferation of poor governance

Mercer and Aon sit at the top of the advisory food chain, they are supposed to be the gate-keepers who set the standards that the rest of us follow. By setting themselves up as both advisers and providers, their status legitimises the practice.

On the basis that “Mercer do it , we can do it”, they’re all at it. Lighthouse are doing it. Lighthouse yesterday had a mini-shareholder spring when it was revealed that their senior management had paid itself £10m in bonuses over a period when the firm had lost £15m. Try picking the governance out of that! And yet Lighthouse are running a master trust.

2. It is a model fraught with political risk.

It was only ten years ago that MMC, Mercer’s parent was embroiled in litigation from Eliot Spitzer , the New York Governor that nearly brought it to its knees.

The issue?

MMC were banking client money as their money, confusing consultancy with custody, treading on the wrong side of the line from “vertically integrated consulting”.

Mercer have already had their collar felt once over vertically integrated products, last year they had to pull a GPP which was paying them fees under the quickly repealed “consultancy charging” regulations.

The practice of earning from the product is only a tiny step from taking commission , a practice banned for new schemes from 2013 by the RDR and for existing schemes (if the DWP Command Paper is enacted- by April 2016)

How different is this? Not different enough in my book


3. It is not a durable model.

Without independent oversite (and organisations like mine have no way of commenting on what is going on within this master trust),Mercer is a law unto itself.

But the seeds of its own destruction are embedded in the flower that shineth today. The best idea of 2013 may be abandoned in five years when new management arrives, a new regulatory regime is established or when the legal writs fly from customers who have no-one else to sue.

Pensions are long term investments, they are not to be entered into lightly. Mercer’s core business is consultancy, it is not asset management. Those who choose Mercer over dedicated master trust managers must be aware that they are backing the the stable’s third string.


4. It does nothing for Mercer’s advisory practice

For all the embedded value in “sticky assets under advice”, the Fiduciary model is corrosive to the advisory practices within Mercer. The concept of the independent consultant is prized by those consultants, kill off the independence in your consultants and what are you left with? Wage slaves with no heart in it, good consultants whose integrity has been taken from them.


5. It creates “asymetric risk” – the people taking all the risk have no say in the decision.

The people who take the risks in DC are the members. Sponsoring employers take the corresponding DB risk and they are big enough to understand what is going on and to do something about it if it goes wrong.

But a DC master trust is different, it is not the company’s risk to offload, yet that is what companies do when they transfer their employees retirements into the hands of master-trustees.

Those employees have no idea about points 1-4 of this blog, which means that they are having risks piled upon them by employers who have abrogated responsiblity for providing them with pensions. This is known in common parlance as a “stitch up”.


Hear this debated!

Tomorrow at 3.35 I sit on a panel with the Chairman of NOW Pensions- (a properly constituted master trust-IMO) and a representative of Mercer.

The last time I saw Mercer on such a panel was two days before their previous effort at vertically integrated DC management was thwarted by the ban on consultancy charging.

I still remember the squirming as it became obvious that Mercer’s product was soon to be consigned to the dustbin.

Do Mercer (and that other American consultancy Aon) think that they are above criticism?

They are not! Come along to the Pension and Benefits 2014 and here the debate. I intend it to be robust.



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A great way to deliver the Guidance Guarantee (for the right employer)

Josh Collins
Josh Collins


In recent weeks, I’ve been taking the temperature of the pension trustees of large employers and found that enthusiasm for providing guidance to employees at retirement is limited.

This is understandable. Do trustees want to become surrogate advisers to members in later life? There is nothing in it for them other than the paternalism that got their DB schemes into such a mess.

However , large employers (as opposed to their trustees) may have good reason to involve themselves in the financial welfare of their staff in their later years of work. Offering staff guidance on how to become financially independent of work may be seen at best as a genuine employee benefit and at worst a gentle reminder that there comes a time to move on!

I’ve still to hear from any employer who has plans to offer the Guidance Guarantee, but I know of many employers who offer pre-retirement counselling, both on lifestyle and finances.

It was therefore a surprise when my inbox received a mail from Josh Collins suggesting a framework for employers and union reps to work together with workplace pensions to establish “trust ambassadors”.

You may remember Josh as the fellow behind the “pension-linked-mortgage” idea. Josh is still at University and is best described as an “enlightened entrepreneur”, who (quite fearlessly) is taking on pensions in his early twenties.

I quote his idea in full.

The promise of ‘guaranteed guidance’, as well as a concern over a lack of member engagement are two topics which came up during last week’s Workplace Pensions Conference. Very little seems to be known about what can be done to improve the condition of the two, and particularly in the case of guaranteed guidance, even less seems to be known about what needs to be done.

I believe that there is a solution which addresses both concerns, and in a highly cost effective way. I believe that the solution is something that members will appreciate and respond to positively, unions will support, and could potentially place an individual responsible for guidance on pensions within each place of work at minimal expense. The concept could also lead to increased member engagement, which is of course important. While trustees and advisors of course have the academic ability to find solutions to raised issues, the issues themselves may only become apparent to those on the ground floor, the members. Through my own experience, I also believe that some members could even offer viable solutions that trustees could implement, saving valuable resources.

The concept also isn’t unprecedented, with prominent organisations such as PwC, and the GMB Union already working with their own variation of the system. As an example of how this idea would work, and what it actually is, I’ll begin by explaining the role of GMB’s workplace representatives (reps).

The position of GMB’s workplace reps are offered to members within each company which recognises the GMB. Reps are given training in basic employee rights, which they can then feedback to other members within their place of work. The system is simple: train one person, who then help others, allowing for prompt assistance in simple cases, and freeing up time for more senior Union officials who can then focus their efforts on more complex cases.

The reps are only trained to handle routine matters of course and offer simple guidance. For more serious cases, the reps help the union member by telling them who to speak to for further assistance and helping them understand their responsibilities at that point in time. Reps are then able to feed back the most frequently raised, and the more serious concerns of the members, meaning that instead of handling feedback from say 100 people within a company, they only receive it from 1. Albeit, there will be much more feedback, but ideally the more trivial cases will have been dealt with by the rep so the number of issues should be reduced significantly (of course members can still feedback directly instead if they so choose).

From an employer’s perspective there is minimal disruption, reps are appointed from within the company and are expected to continue with their usual responsibilities. Again from my own experience, I can say that guidance is usually offered during designated breaks. This means that the only cost involved is for the training, time spent as a rep is unpaid. In fact, companies such as ASDA appreciate the role of the rep so much that they are guaranteed a place on the colleague voice (a kind of council which again is designed to feedback the concerns of individuals).

The most endearing twist here is that these representatives work in this role for free, in fact they essentially pay to be in the role because they need to be a paying member to qualify. This might seem like exploitation, but nobody is forcing individuals into these roles, and admittedly not everywhere has a rep as a result. However the role is seen as an excellent development opportunity, and similar roles are found within graduate recruitment. I’m actually registered as a PwC brand ambassador, which is similar.

Brand ambassadors do usually receive some compensation, although it is unlikely to be cash. Instead students take advantage of the opportunity because of the opportunity to undergo specialist training, to enhance their CV, and to learn more about an organisation. Reasons which I believe would be similar to union reps.

Some of the benefits to the organisations are of course clear. Organisations enhance their human resources at minimal expense. However, there are further benefits. One of the main ones being that the role presents individuals to members/students whom they can relate to. This would be particularly beneficial to the pensions industry, which is often seen as an industry for older generations- especially considering the fact that it may be younger individuals who would be interested in this kind of role to gain experience and enhance their CVs.

The role of the workplace rep is fairly long standing, but the brand ambassador is new and gaining momentum. Towers Watson, for example launched their new brand ambassador roles this year.

I believe that pension trusts should consider similar roles. Trust Ambassadors could be trained into further detail than other members, being trained in basic rights and responsibilities, who to contact for what and when etc. The ambassadors could also encourage feedback simply by being somebody that the member is likely to know, the comments could then be fed back to independent governors and/or trustees. Setting up training for the millions of individuals within the UK can be a slow and expensive process, similarly setting up telephone advice centres can be costly and could continue to present a distance between members and trustees. There may also be a reduced chance that members would engage with these methods in anyway other than for the guidance (if at all). Placing a Trust Ambassador within each place of work could make the pensions industry more approachable and would only require the cost of training the ambassadors (although it would be beneficial to offer some form of formal training to individuals, the ambassadors could supplement that training).

It is of course unclear at this moment, what will be required in terms of ‘guaranteed guidance’, but one aspect which has been discussed frequently is the fact that guidance is not the same as advice. Trust Ambassadors would be unlikely to receive the kind of training which would qualify them to offer formal advice, but I believe that it would be perfectly reasonable to ask them to offer guidance. It may also be that this system doesn’t fit into what the government expect from guaranteed guidance, however not only could this approach prove cost effective, but if this guidance is to be given by April 2015, there aren’t many ways which could pass on the right kind of information with the speed and efficiency as the word of mouth offered by this system.


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Can accountants ignore workplace pensions?

IMG_2663While all the noise is about the risks of employers not fulfilling their duties to set up and establish the processes to make “auto-enrolment” happen, the point of auto-enrolment, which is of course to deliver decent income for staff in later life- has almost been forgotten.

When we speak to employers and their advisers we often hear the complaint that as unregulated advisers, they cannot meet their client’s requests for advice on whether their existing workplace pension is fit for purpose or on what workplace pension to choose going forward. There are two reasons given

  1. Accountants would fall foul of the FCA’s regulations on advice
  2. They don’t have the competencies to deal with these matters

I’ll come back to the second point in a moment but I’ll be categorical that accountants and employers can assess whether an existing pension qualifies and can choose a new qualifying pension without any fear of censure from the FCA. This is opinion, it is a matter of policy

 workplace advice


This statement is written on page 11 of the Guide to the regulation of workplace defined contribution pensions jointly published by the FCA and the Pensions Regulator in March. If you want to read the document here is the link

There is deep scepticism about this statement at all levels of the accountancy profession. The ICAEW have not commented on it nor other trade bodies. If you follow the thread on Tony Margaritelli’s recent video blog , you can see how entrenched positions are.

It may help here for me to explain why the FCA and the Pensions Regulator have issued this statement. It has been clear for some time that the DWP is making the “Qualification” for a workplace pension tougher. It is intending to introduce ne rules in 2015 which will reinforce the governance of these pensions, make charges and costs more transparent and introduce a cap on the charges on the default investment option. In April 2016, it will introduce a ban on legacy commission being paid to regulated advisers from such pensions and will also ban the use of active member discounts (a means of getting leavers to pay the pension costs of those at work. Finally, the costs of auto-enrolment will have to be borne by the employer and not by the member.

The Pensions Minister, Steve Webb, has repeatedly stated that he wants workplace pensions to be “non-advised” products and has explicitly linked these Qualifications to the purchasing process. The message is that if a pension is “Qualifying”, it is fit for purchase and sits in what US Regulators call a “safe harbour”.

There are now only 22,000 IFAs in the UK, down from nearly 100,000 at their peak. The RDR and in particular the abolition of commission has meant that few of their number advise on workplace pensions. They tell us they have difficulty in getting paid for that advice. It is true that there is a reluctance to pay IFAs regular fees but is part of a wider problem IFAs have adapting their business model.

Taken together, the regulatory easement mentioned above and the reluctance of IFAs to advisers, should present a great opportunity to practitioners to fill the gap. But this presupposes that there is demand from employers for advice on the purchasing decision (and an assessment of existing pensions). Recent research by the Pension Regulator and an independent study by NOW pensions suggests that employers are concerned that they choose the right pension for their staff. Only 8% of small employers questioned by NOW considered their choice of workplace pension unimportant.

So far, practitioners have not experienced this demand but this is because the employers staging auto-enrolment thus far, have mostly had workplace pensions established for some time. Many of these pensions will become uncompliant in the next two years and there is an opportunity for a pensions audit in the meantime. But most of the 1m+ employers still to stage auto-enrolment have no workplace pension or a pension manifestly not fit for purpose.

Returning to my second point, the skills needed to help clients audit existing plans and choose new ones are skills that practitioners possess. What they lack is not the analytical capacity but the technical knowledge of the Qualifying rules and the research to help clients make informed choices on workplace pensions.

We expect to see workplace pension providers marketing directly to you in the months and years to come, keen to engage you as their new distributors. You will see more and more pensions people like me on AccountingWeb , at your conferences and in your journals. It would be fair to say that Britain’s pensions industry needs you rather more than you need the Pensions Industry, but that is a position of strength which you should individually and collectively be enjoying.

Your next step may be to think through the implications of the regulatory easement. If you feel that your practice development would benefit from providing help in the assessment and choice of workplace pensions, there are places you can go to get help. The website we run being one of them.

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Call in for a Great British Pension




The initial euphoria following the 2014 “pensions bombshell” budget may have died away, but in it’s place we are seeing real progress towards a better deal for those spending their pension pots.


Work is concentrating on two areas, the building of a new and better products to help people manage their savings in retirement and the design to deliver the Guaranteed Guidance available to anyone retiring from next April.


We at the Pension PlayPen are proud to be playing a part in all this, being a part of the Annuity Framework Group that will help deliver Guidance and being regular visitors to the DWP and the Pensions Regulator, helping shape  the Governance of the workplace pensions of the future.


We cannot allow a repeat of past policy failures, private pensions are in a last chance saloon and if we don’t get it right this time, the British Public may lose their confidence in pension for ever.


Our response to the Treasury Pensions Freedom command paper which will free us from the yoke of the annuity is available here


Our response to the DWP Measures for Savers command paper which will give us better workplace pensions is available here.



So what of these new products? Expect throughout the next twelve months to hear stories of new wonder pensions which will help you invest your savings, spend your savings and manage your overall finances.


If you’re interested in what the brave new world of workplace pensions looks like after 2015 read our thoughts on who will look after us , what they’ll look like and how we can deliver this guidance guarantee.


Watch out for more pensions news in the Queens Speech on June 3rd. We’re hope on hope that her majesty will announce an easement in rules which will help these new products fit into the New Annuity Framework. If we get this easement, we’ll have all we need to deliver Great British Pensions!




Nobody knows for sure whether auto-enrolment, the new workplace pensions , the guidance guarantee and the New Annuity Framework will work.


But we know that without us, it will fail. “Us” being the people who have to make it work! Whether you are tasked with sorting pensions for your employer or you are an adviser, accountant or other agent, you are probably as intimidated by auto-enrolment as we are!


We’ve set out to make one part of the process a little easier. Choosing a workplace pension is in some ways the easiest part- what could be easier than picking up the phone and calling NEST? But it is also the hardest to explain.


What will you say to your staff when they ask you why you chose the workplace pension you did?

What happens if something goes wrong with your workplace pension provider?

Where is your audit trail when you are asked to justify your decision?


A workplace pension is for life, not just for “staging”.


Which is why we would like you to Register as a Pension PlayPen agent. It’s as simple as clicking this link


If you want to find out more about what being an agent offers you and read testimonials from those who’ve used our Choose a Pension service , then click here


So far over 3m people have been auto-enrolled from only 10,000 companies. But there are another 8.5m employers waiting their turn and a massive 1.25m employers who are still to stage.


To make this happen we need to work together , to a common purpose, register with us today and use to ensure your clients get a Great British Pension


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“Thinking slowly” with Morten Nilsson of NOW Pensions

beowulfIt was a disappointment on touring the British Library on Thursday to be old that on this tour I would see no books. I had hoped to see the Nowell Codex which is the only surviving copy of the epic poem Beowulf.

My disappointment dissipated  the following day when I met with a latter day Beowulf.

Morten Nilsson who is the boss at NOW pensions. I imagine the fictional Beowulf to be a calm and hair man who slays monsters and dragons for fun and wanders round the frozen wasteland like an arctic Clint Eastwood.

Morten’s dragons may not be so cinegenic nor as epic, but you can only slay what is put before you and in Lineker-speak “the boy’s done well”.

Who’d have thought that a Dane could set up shop with nothing but a brightly coloured logo and a focus on good member outcomes and three years later have 10% of the auto-enrolment market?

Who’d have thought he’d have done it with just one fund and without any of the gismos – corporate wrap, employee portals and full SIPP functionality?

The clinical excellence of NOW’s product positioning is now being matched by the excellence of its delivery. With Staffcare inside the product and online implementation, NOW is living the dream and any employer struggling to stage because of problems with their provider (or problems with a lack of a provider) would do well to go straight to NOW.

But NOW have always been gracious in sponsoring choice. They co-exist with NEST and do so without the state funding, they co-exist with the leading insurers without the brand and they co-exist with established the resurgent Peoples Pension and the smaller master trusts sitting on our Pension PlayPen platform and helping us deliver online choice.

If this is sounding like an advert, it is because it is. Pension PlayPen will only accept advertising from organisations whose products it believes in and adopt our collaborative approach. We like to thank those like NOW and Legal and General who have sponsored us in our first year of trading.


But on to the substance of my conversation with Morten. We talked of the inevitable consolidation of the single employer occupational DC schemes and weaker master trusts . We talked of the need to formalise governance guidance into “the law”. We talked of individual consolidation of small pots to help organise people’s finances in the New Annuity Framework.

We talked about how guidance can de delivered without it becoming a sales pitch for advice or for one provider’s solution over another. We discussed how guidance should be paid for.

And we talked about the default offerings of the future, capable of managing not just people’s savings but their spendings.  Morten laughed when I reminded him of Victoria Derbyshire’s comment that she hated saving and loved spending and referred to her pension contributions as “spending on retirement”.

Morten reminded me of a conversation with PIMCO who (when promoting their decumulation offering)  had made the brilliant point the only time people get certainty about their future income is at retirement.

Morten commented that we all live with uncertainty over our pay; many of us seen our basics fall in the past five years, many of us experience periods where we have no income at all and often we have to take jobs on a lower wage than we have previously enjoyed.

And yet we have an expectation in retirement of a certainty of income which is quite different from anything we have been used to before.

Morten and I talked about what people really want in retirement, of how people can earn in later years and how spending changes over later years.

And with a viking langour, he delivered his coup de grace

“I’m thinking slowly”.

Amidst all the turmoil of battle, Beowulf always remained calm and I suspect he thought slowly too. The consideration with which NOW delivers and will continue to deliver to our expectations depends on Morten thinking slowly.


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“Ring out the old – ring in the new”- who will be our investment fiduciaries in retirement?


Yesterday I went to the Schroders DC Challenge conference which was all about “delivering value and certainty” to retirement savers.

I left enlightened by some interesting debates and one or two talks. I’ll share with you three observations that I jotted down as we went along.

Observation one – the new model trustee wants nothing to do with post-retirement member outcomes

Unless my ears deceived me, I heard a panel of trustees (professional and otherwise) claim that the business of looking after the funds of DC pensioners is  a responsibility too far.

Methinks the trustee doth protest too much!

It’s true that they were talking about the impossible obligation imposed on them to organisae and deliver the guidance guarantee. (I think that this burden will be transferred to a centralised agency but that’s another matter).

I just don’t understand why the financial welfare of a member is none of a trustee’s business. In my books the trustee’s job is to protect the member’s interests and maximise the outcomes of their savings.

Suggesting that trustees’ obligations end at the point someone decides to start spending their saving is like walking out of the ground at  at half-time (when you’re the ref!).

I’ve spoken earlier this week about the regrettable trend towards “risk-based trusteeship”. It seems that the new model trustee sees the implementation of risk controls to protect members as “job done”. 

Which might explain why trustees showed so little concern at the start statistic that only a quarter of those buying annuities with the proceeds of DC trusts were shopping around.

Presumably there was no risk in consigning members to a broken annuity market and expensive and often inappropriate retail products.

But there is a risk that in providing a default decumulation fund, trustees might sail out of their safe harbour.

I have to disagree with this view. It is not a matter of risk , it is a matter of wanting to act in the best interests of members. If trustees do not consider that their primary objective, they have abdicated their fiduciary responsibilities, they should forfeit the title of trustee and call themselves “risk managers.


Observation two – many trustees are not engaging with their new duties post 2015, nor are likely to

Well those trustees who think adapting the funds on their watch to help people spend as well as save is a burden, have obviously not studied the DWP Command Paper “Further measures for savers” where they will find a list of new duties besides which the duty to help members in retirement is child’s play.

I know some DC Trustees who welcome these new obligations. They are looking forward to 2015 as an opportunity to do good work for their members and are relishing the challenge of exercising proper controls, communicating with members and helping organise sensible options for members spending their pots.

But they are very few and far between. This morning I am meeting with Morten Nilsson , CEO of Now Pensions. I am quite sure that both from a commercial and from a fiduciary perspective, he will be relishing the opportunity to manage the investments of those spending the pots they have built up in his master trust.

But it’s not for nothing that a whole chapter of the DWP Command paper is given over to the capacity of occupational trusts (and we should include in this sub-scale) master trusts to addd value post 2015.

For trust boards with no appetite for the struggle , the option to transfer assets and their obligations to other trustees will be welcome. I am sure that NOW, Peoples and other master trusts are looking at 2015 as an opportunity to consolidate many occupational DC schemes.


Observation three -  Asset managers have an opportunity to get some skin in the DC game but they’ll have to show some fiduciary responsibility for member outcomes

Which brings me to my third observation. It is time that those who manage the assets on behalf of the UK working population, took some fiduciary responsibility for retirement outcomes.

I have been scathing of asset managers in this respect and will continue to be so. However, I did see some glimmers of hope at yesterdays Schroders Conference  “The DC Challenge- delivering value and certainty”.

Much of what was said by the hosts I agreed with. 

I wish they would not continue peddling the myth of the “psychologically scarred DC saver”. DC savers are not scarred by events like 1987 and 2008, they do not need to be wrapped in cotton wool as they save. They know they have plenty of time to make up for investment losses and some of them are even comforted by pound cost averaging.

But the use of volatility caps to provide smoother investment returns will be really useful in the post retirement phase where drawing down income or capital at the time of a sharp fall in unit values can result in “pounds cost ravaging”. You get to be psychologically scarred when your predicted income stream in retirement is reduced for ever by having to sell too many units to meet an income payment. This is real not mythical damage.

In an excellent talk, John McLaughlin demonstrated that a variable volatility cap applied to a Global Balanced Portfolio and a Global Equity Portfolio targeting a maximum loss of 12%pa over any rolling 12 months period could achieve its goal (net of fees).

Schroders are now testing whether a fund with an easier CPI+2% target could achieve a target of not falling more than 8% in a rolling 12 month period.

These may not sound hugely ambitious targets and they aren’t, I pointed out that there needs to be more conviction from Schroders in their system. My suggestion was that they offered a free year’s management if they ever lost a member more than 8%. Well the session was called the DC Challenge.

While I got some dirty looks from my friends Stephen Bowles and Hilary Vince, I think we understood each other. 

For consultants, trustees and members to want to work with asset managers, we expect some risk sharing. Asset managers are happy enough to take their fees in the good times, but when hard-times happen and they fail to reach their targets, shouldn’t this be acknowledged in lower fees and some form of compensation to those who have been let down?

What I am asking of fund managers is that they pick up some of the Fiduciary slack created by the abdication of the sponsors of occupational pensions and their trustees of responsibility for later life member outcomes.


What I learned from attending Schroders DC Challenge was three things.

That the new model trustee wants nothing to do with post-retirement member outcomes

That many trustees are not engaging with their new duties post 2015, nor are likely to

Asset managers have an opportunity to get some skin in the DC game but they’ll have to show some fiduciary responsibility for member outcomes

I will be speaking on this topic at the Pension Network’s Special meeting on Friday 16th May and look forward to getting some interesting feedback from its audience. If you have any comments on these points, please feedback below or contact me on

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How I want my hard-saved earnings – thoughts on a walk!


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Not many people fantasize about the letter they will get from their workplace pension provider when they get to the point they can start spending their hard- saved earnings.

As I made my way around Studland Bay, Old Harry Rocks and the beautiful woods of the Purbeck hills, I mused in sub-Wordsworthian fashion about how I’d like to hear the news that after a lifetime’s toil, I could now start to wind down.

Whether the time for the letter is my 55th or 67th birthday (my state retirement age, my choices are similar – more work – more saving- cheaper lifestyle! I know whatever I’ve saved in 3 years time will not be enough to secure my and my family’s future.

So this is the letter I came up with in my head


Dear Henry

Though we haven’t met, I and my colleagues have been looking after your retirement savings these past few years. I hope you think, we’ve done a good job, you’ve certainly done yours.

When I looked yesterday, you’d saved £1m.

In a few months time you’ll be 55 and this letter’s a wake up call telling you what choices you have ahead of you. You can take this letter with you to your Guidance meeting which the Government are setting up for you. Whoever you meet there will be able to answer your questions face to face.

You can do nothing - leave your money with us and let the fund roll-up

I’m sure you’ll be pleased to know that you don’t do anything at all, your money can continue to be invested. Because you haven’t made any investment decisions, you’re leaving it up to us, we’ll be investing your money to increase your savings but we’ve turned down the risk button from where it used to be, your returns will be a little less, but we hope we’ve cut out nasty surprises (the last thing you need when you start drawing your money).

You can spend your pension savings and keep the money with us

You can carry on building up money as long as you like and of course you can continue to put money into your funds. But there may be a time when you start drawing cash into your bank account. Again, you don’t have to take any decisions, just tell us what you want and when you want it and you can take money out of your pension savings as if it were a bank account.

You can choose to draw a little every month (as if you were being paid) , take big chunks from time to time or do a bit of both. There are tax consequences for doing this. Some of your money can be drawn tax free, some may be taxable but will fall within your tax exemptions and some will be taxable at your highest rate of tax. Worse than that , paying yourself from your pension may push you into a higher tax-bracket. So take care how you do all this and speak to an adviser if you need help (see later in this letter

Or you can do something totally different!

But this is me being a little presumptious. You don’t have to keep your money with us and you certainly should look at alternatives.

You can guarantee your income for life with an annuity.

In the old days, people like you invested your savings in a guaranteed annuity which paid out a fixed sum for as long as you lived. Sometimes longer- as you could choose for it to pay to your partner if he or she outlived you.

Annuities have fallen out of favour recently because of the low amount of income they offer. Many people who value the guarantees of income are choosing to defer buying an annuity till later in life so that they can benefit from the returns from the market in the meantime.

But that doesn’t mean you can’t buy an annuity today; if you do want to explore this option, please don’t take the first annuity that comes your way, make sure you get your health checked out- this is one time when being unhealthy gets you more! Make sure you get the best rate on the market by using a market-leading adviser.


You can switch your savings to someone else.

I’d be lying if I said I wanted you to do this, but I know we’re not the only organisation offering to manage your retirement income for you. Many of our competitors will allow you to transfer your savings to them and they’ll try to do what we try to do.

You can join a Defined Ambition pension scheme

There are specialist providers who offer collective retirement plans which work a little like the old company pensions. You join a pool of people all of whom are drawing down incomes against their individual pension pots. But these kind of arrangements provide you with extra protection against you living too long by using the leftover funds from those who die early to boost the funds who live longest. It’s macabre to explain it as a death club- but that’s what it is! These arrangements are called Defined Ambition because they aspire to do what company pensions did and provide you with insurance against you living too long without you having to buy an annuity.

You can “Cash-out!” and do what you like with your savings

You can draw all the money out of your pension, pay lots of tax and use the rest to have a good time. There’s nothing wrong in doing this. If you hate the idea of anyone having anything to do with your money but you, then draw the money in used fivers and stick it under the mattress!

You may have to pay quite a lot of tax if you take your money all at once but don’t let this stop you, the more tax you pay, the less tax I pay!

Of course most people won’t do that and you may already have plans for what you’ll do with your pension cash. Whether that’s to buy a property, set up a business or just get yourself a decent lifestyle (till the money runs out), the choice is yours and neither I , nor anyone else , is going to stop you going down this road.


You may want to take advice

I’ve mentioned earlier that the Government is going to offer you some guidance for free. Guidance can explain your options but stops short of telling you what is best for you.

If you want to be told what to do, you need to pay for financial advice.

Taking private advice is like taking private medical care of going to a private teacher. It’s not essential , but if you have the money- and you do- it’s worth thinking about.

A lot of the options mentioned in this note, are quite hard to research as an individual. Things can go badly wrong if you mess up on tax, have to pay unnecessary charges or choose an unsuitable option for you.

If you feel you need more help, you can choose to pay money to a qualified financial adviser who will look at things in more detail and help you choose your best option in the light of your particular circumstances.

Personally I am going to use an adviser as I don’t want to make any decision about how I get paid for the rest of my life without some help! I ‘m thinking about my health, my grandkids, the possibility of my having to go into a home and I’m thinking about how long I’m likely to live.

My adviser will look at all my  options, tell me my best annuity rate, look at Defined Ambition plans with me, explain what rival organisations to mine can offer and help me understand the costs I might incur if I had a long terminal illness.


A word of warning

The more you do with your money, the more risk there is of things going wrong. If you want to do something clever- please check it out with an adviser- you can easily lose money through buying and selling investments. People don’t often realise that the costs of buying a house (fees, stamp duty and commissions) are also payable on buying and selling shares and other financial products.

I say this to people bringing their money to us from somewhere else and I’ll say it to you (who’ve got your money with us), moving money around for the sake of a good deal is a risky thing to do.

It’s best to invest time and be cautious than have to move your money around. And don’t be suckered into thinking that anyone benefits from churning your investments other than the people who do the churning!


A final word

So that’s it from me. I hope that you enjoyed reading this note. I know we don’t know each other and sadly I doubt we ever will. Nonetheless, I’d like to thank you personally for investing with my company.

Enjoy your guidance session, take advice if need be, don’t be suckered into doing anything you don’t feel sure about and remember, if all else fails, we will be your backstop, pay your pension how you choose and continue to invest your money.


Kind regards

Chief Executive Officer (BSD- with knobs on)




Posted in advice gap, annuity, Bankers, Blogging, CDC, dc pensions, defined aspiration, FCA, Financial Conduct Authority, NEST, pension playpen, pensions | Tagged , , , , , , , , , , , , | 4 Comments

Can we deliver the Guidance Guarantee?


We are all worried about the Guidance Guarantee, the content of what will be delivered and the quality of the delivery. We worry for a variety of reasons but mostly we worry that people will not get what they expected and that the burden for delivery will fall on the wrong people in the wrong way.

Ultimately we are worried that rather than restore trust, the Guidance may bring pensions into (further) disrepute. That cannot be allowed to happen. Which is why I and many others are applying our brains and will-power and fingertips!


The two aspects of the problem cannot be split but it helps to consider them separately, if only to understand that the customer’s experience is what this is about.

Measures for success

I am quite clear in my mind that the measure for success is happy customers, if 90% of those who go through the guidance process are satisfied, then overall success may have been achieved but it is how the 10% who are not satisfied are managed that will be most important. It is those 10% that the press will concentrate on.

Granted that there will be dis-satisfied customers, it is the overall endorsement of the enterprise by the majority that will keep the show on the road. The NHS, our schools and other public services are not uniformly admired, but they have become a part of public life which renders them self-perpetuating. This durability is something that the retirement Guidance Guarantee should aspire to.


Independence                                 Scalability

Cost-Effectiveness                       Experience

These four key metrics in the box are the critical ones. 

Independence is a measure of intent. There can be no secondary agenda in these meetings. If the signposting on next steps benefits the person providing the guidance the intent is compromised and the meeting will fail. It is hard to imagine any private contractor being trusted to deliver independently. 

Scalablility relates not just to numbers , but to the type of demand. Delivering 50% in person is a lot tougher than 90% by Skype. Perhaps the most onerous phrase in George Osborne’s promise was “face to face”. Logistically it is the most challenging aspect of the Guarantee.

Cost-effectiveness in this context means delivery without waste. We know that a £20m budget can be blown on 35,000 people because we have seen it spent- by a UK PLC this year. Using the means of delivery employed in this case suggests that the burden on the public purse, should such an approach be used would be closer to £200m. This is easily affordable- relative to the budgets employed by the DWP to reduce benefit fraud, it is small. Unfortunately this is pure spend for the Treasury- there is no anticipated saving to the revenue in the short term (though in the longer term good decision making, leading through to lower state dependency  should be a win for the public purse.

Experience - inevitably there will be some who will call for a new breed of adviser who has no knowledge of the pensions world and will provide fresh , jargon-free, guidance. But we do not have the 6 months to train these people nor do we know where to find them, nor how much we would have to pay them. Whereas there is a large talent bank of people in the financial services industry who know how to do guidance and could be diverted to this task very quickly

Who pays?

The trite answer is that the taxpayer will pay. This is part of a risk-transfer of obligations from the state to the individual and should be considered a transition cost.

Consequently, the impact needs to be spread across all beneficiaries of this process. The transfer of funds into the private sector and specifically the financial services sector suggests a general levy on the financial services community that could include occupational pension schemes (who pay a levy to the PPF) as well as IGCs , commercial Mastertrusts and not for profit trust boards (typically single employer). But the levy must also be on fund managers and deposit takers. Even lenders are net beneficiaries of the new annuity framework.

By diluting the costs over such a wide base , the impact of the Guidance Guarantee can be diluted and its cost apportioned in alignment of long-term interests.

We should consider £20m no more than a primer, sufficient to get the system in place, but not to run it. If we consider the deployment of a nation’s later life personal wealth a matter of national importance, we should not be quibbling over whether the impact of these measures is £20 or £200m. If the £370m we have spent on NEST has meant that we have an intelligible savings system, then it was money well spent.

Where this takes us?

I have said in previous blogs, that this process is going to have to be led by someone with the vision to both imagine and deliver the solution. I know my architect of choice (it is not me). I

It’s becoming clear to me  that only a non Governmental Organisation  (NGO )can deliver on independence. An NGO is separate from Government but delivers public policy in the public interest.

And that NGO must be experienced, it must be scaleable and it must be cost-effective.

This narrows the field down for me. To my mind there is only one NGO that delivers on all four of the metrics and has a leader capable of taking on this challenge.


On 23rd May we expect to hear from the FCA what their preliminary thoughts and see a “straw-man solution”. It is critical that a leader emerges to take hold of this project and that leader is entrusted with its delivery in this timescale.

For all NEST’s faults- it has delivered. I do not think it could have delivered without the stable management team that has and is delivering.

For all it’s faults and failures , NEST is delivering in a way that the Guidance Guarantee can deliver and if we can find a GG Tim Jones (not Tim Jones!) then we are 75% of the way there. There needs to be an equivalent to Laurence Churchill to organise Government and there needs to be clear and consistent Government Policy (as there has been with Auto-Enrolment).

But as with auto-enrolment and with NEST, the way forward has to be independent, cost-effective, scaleable and build on what we have by way of pensions architecture.

I believe we can build and deliver this for 2015 and pledge my support to any comparable vision to that articulated here.

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Is the game up for active fund management?


The Department for Communities and Local Government announced yesterday that £85bn of actively managed assets could be transferred to passive management and that the fund of fund structures could be collapsed into a collective investment vehicles.

This is very significant as has been pointed out by this blog’s regular contributor Michael Johnson who in a deliciously disruptive press release suggested

“The Government’s decision to place the underlying research report, independently produced by Hymans Robertson, into the public domain is welcome. This introduces a degree of transparency hitherto unseen in public service pensions, and robustly shows that the additional costs associated with active fund management, relative to passive management, are unjustified. …  There are also of course profound implications for the on-going management of private section occupational pension funds.”

The sums involved are staggering “Employer contributions to the Scheme, the majority of which are funded by taxpayers, were more than £6 billion in 2012-13. The costs of managing and administering the scheme were estimated as being £536 million in 2012-13.

However, the actual costs are likely to be rather higher; the investment costs alone have recently been estimated as in excess of £790 million.

The two key proposals are that:

1.all of the LGPS’s £85 billion of actively managed listed assets should be moved to passive fund management, to be accessed through a common investment vehicle. The resulting reduction in investment fees and  transaction costs is expected to save the LGPS some £420 million per year.

2.all “fund of funds” arrangements should be replaced by a common investment vehicle for alternative assets, ultimately saving the LGPS a further £240 million per year.

These savings will accumulate over the years, potentially saving the LGPS employers (i.e. taxpayers) many £ billions in employment costs. 

I’m not going to go into the rights and wrongs of adopting this approach, Susan Martin who heads the LPFA had called for the Government to go further and pool the liabilities (not just the assets).

Many people I know, Michael included, have called into question the benefit structure of Local Government Pensions which has been likened to the white side of “pensions apartheid”.

But let’s stick to the matter in hand (and under consultation). What does Michael mean by “profound implications for the ongoing management of private section occupational pension funds”?

The Hymans Robertson report on which the proposals are based is quite explicit

There are some funds which have performed consistently well relative to their peers. However, for the LGPS taken in aggregate, equity performance before fees for most geographical regions has been no better than the index.

The benefits of active management are nullified by the transaction costs. The fees paid to the active managers are a pure drag.

Overall the Local Government Pension Scheme (LGPS) is paying around 0.41% for its fund management, slightly less than would be expected in the private sector. But it’s the (over) use of active management and the employment of inefficient fund structures to manager alternatives (hedge funds) that really costs the tax payer.

The report also notes that keeping all the plates spinning is costing £45bn in investment over-site . Good on Hymans for including this (though I suspect that overall they have more to gain than lose from these proposals).

So what the report is saying about public sector funds is probably true of the private sector too.

Transaction costs wipe the alpha generated by active equity managers

Fund of (hedge) funds add an unnecessary layer of intermediation

All this complexity requires further consultancy costs.

Expect a massive backlash from the active fund industry , alternatives managers and the investment consultants. There are a lot of Ferrari salesmen who should be worried too!

Well done to all for getting these numbers out in the open, the consultation paper is a good read, especially the objections to consolidation put up by fund managers keen to “preserve the democratic link between local authorities and their managers”. These links presumably include the “relationship management” on which so many of our prestigious social and sporting events rely,

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Fundless fund platforms?


Over the past fifteen years, new technology has brought us the fund platform, open architecture and unlimited choice. It has not brought us good fund governance and that’s what’s round the corner.

But we are about to find that the price of well governed funds is restricted choice and that means the end for the 250+ fund ranges we have got used to seeing when we look at the “full fund range” of most GPP (let alone GSIPP) providers.

Putting a fund on a fund platform is a simple business. You need an Investment Management Agreement with the Fund Manager, and you need a funds administration function to make sure the right money goes to the right people at the right time and errr….that’s it.

Whether the fund is doing what it says on the packet is nobody’s business but the adviser and the client’s.

This is broadly speaking the model that has driven the success of fund platforms – whether insured – (Skandia, Aviva, L&G ,Standard Life) or non-insured (Hargreaves Lansdowne,Co-Funds,Nucleus et al).

The yeast that raised the dough was and is advice.

Many people think that the funds platform model is the way forward for those managing wealth for later years and so long as there are advisers (and there are around 22,000 in the UK) there will be fund platforms, with fund governance conducted by the advisers.

But do the maths, the average adviser may be able to manage 50 clients meaning that about one million of the fifty million savers in the UK. Even were there demand for individual advice, there is insufficient capacity. 

I suspect that demand currently meets supply (which means we have an efficient market. It may be, as has happened in Australia, that as asset balances increase, the demand for self-managed ,semi advised or fully advised portfolio management services increases. But even were it to double, the vast majority of savings in this country will flow into non-advised solutions designed to be ok most of the time.

The dream of making us all our own CIO is over. It sided in the US around the turn of the century when firms like T Rowe Price work ip to the fact that despite 20 years of financial education programs, assets were being managed on 401k fund platforms much as they were at the outset of the programs.

To mis-quote Yeats “in this world, the best lack all conviction while the worst are filled with a passionate intensity”.Those zealots for the personal financial engagement agenda were often the most mis-guided in terms of execution.

The DWP and FCA seem determined not to be led down the path to a fully advised world. Yesterday Steve Webb demanded that the default solutions at retirement should not be into retail products. Reading the DWP Command Paper “Further Measures for Savers” it is absolutely clear that the DWP do not believe in mass-market advice. Nothing I have heard from the Treasury or the FCA suggests that they believe in mass-market advice, fund platforms and ligh-touch governance.

The alternative is the sturdy proposals on IGCs and Trustees to properly investigate what funds are doing, publish statements of investment principles for each fund, issue annual statements on the performance of each fund against its principles and a rigorous exploration of charges and costs. 

All these proposals have a cost. Trustees may be comfortable to go round the loop for the default and maybe a core range of risk-graded alternatives. But are they going to do this upwards of 250 times?

I very much doubt that any Qualifying Workplace Pension will be offering more than ten fund choices in a years time. Infact the trend will be towards the mono fund solution pioneered by NOW. NEST are reporting 98% of contribution flows to the default and while I expect more dispersion over time, the incidence of default usage isn’t likely to fall any time soon.

Since the costs of the governance have to be met out of the charge, it is likely that non-default funds (which are not subject to the cap) will be loaded heavily for this extra governance to a point where they look so un-competitive that they are virtually unused.

Fund platforms may have reached a high-water mark in terms of their diversity of offering. While I expect to continue to see unlimited choice in the advisory space, the workplace pension will see massive consolidation around the default , a couple of risk-graded alternative and the odd specialist fund for the ethical investor.

This will be as much the case in decumulation as accumulation. Fund managers looking at wealth managers and DFMs to manage out the long-tail of in-retirement savings look as if they will be locked out of mainstream product as they are from the savings phase.

Ultimately governance concentrates on things that can be measured and controlled- asset allocation,costs and due diligence on the manager’s capacity. It avoids things that it cannot control, skill-based factors that generate alpha but at the risk of things going tits-up.

There may be some appetite for risk within defaults, where trustees may be a little more ambitious, but even here , any solution that relies on subjective assessment is unlikely to be popular.

It is this limitation which may frustrate the engaged investor and drive them towards self-managed solutions. The advisory community already knows who these people are and will continue to cater for their needs, but their numbers are unlikely to be swollen by the auto-enrolled and I suspect that most in the squeezed middle will rely on IGCs and trustees to provide preferred solutions and avoid light-touch fund platforms as “rich-men’s playthings”.

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“Whether we’re up or down”- what the terraces teach us about finance



The reference is to a line in “Yeovil True” which celebrates our fan’s relationship to the club.

On Friday the club’s men’s team did go down to League Division One, this time last year we went up to the Championship- “Yeovil True” is about consistency, not changing things unless you have to think about the long-term.


Constancy is not something you hear much from the financial services community. There is always something new coming over the horizon. The latest “new” is the one year bridging annuity which has been the subject of violent debate on twitter initiated by @rosaltmann.

As Ros is keen to point, doing nothing and remaining true to your pension fund may be a better idea than sinking your pension savings into a one year bridging product and then starting all over again in 2015. I am not sure about the tax implications, but the fact that Aviva are staying out of this suggests that they smell the whiff of consumer detriment in the air.

One particular comment of Ros’ caught my eye - “why can’t people just stay in the fund?”. This may well become the rallying cry for those of us who are more interested in outcomes than sales  and would like to disassociate the pension brand from financial engineering (or financial innovation as John Ralfe is now calling it).

Of course we do need innovation to make the New Annuity Framework – work. Some of these are tax reforms – removing the technical obstacles to people “taking it all at once” being the obvious one.

But we don’t need to make reform hard work for people!

Yeovil Town will not be sacking its manager, we won’t be ripping up season tickets. People approaching the end of their pension savings career, need not be doing anything very radical either.

In fact the 30 minute guidance session which the Treasury wants to guarantee people should be for many a reassurance that they don’t need to worry rather than a call to action.

Most people should, and I believe will, maintain their funds in their pension savings account and draw income and capital sums from those accounts over time. This assumes that the providers can adapt their systems to pay out rather than simply accept “monies in”.

This should be the default position and it would have to be the individual’s decision to make a move somewhere else- to a specialist drawdown product or an individual annuity or to cash. Whatever intervention people make will have a cost- advice -transactional -tax. These risks will need to be set against the upside of making a move.

This is innovative stuff (John Ralfe). It will mean that insurance funds which have so far (through lifestyle) have targeted annuitisation and cash, will in future target income and cash (much as occupational pension funds which pay pensions to members have to already).

There are some  investment vehicles better suited to this than others. The target dated fund, which carries the pension savings of people looking to start their pension spending from a certain date (2028 is mine), can manage this process very well. These funds can serenely move from building up pension savings to paying out pension savings without much disturbance at all.

It is also possible for the apparatus that supports lifestyle to be adapted to transfer people into funds that pay-out rather than build up (though this is a little more messy and will involve some costs in terms of paperwork, explanations and the frictional costs of buying and selling units -which shouldn’t go on with target dated funds).

Again the footballing analogy should be helpful, Yeovil will start the next season as it did the last and the one before – our fans are true-whether up or down.

Why this is so innovative is that for the first time in my lifetime, the interests of the financial consumer are being put above those of the financial services providers. At least they are in my little world – which I hope is getting to be a slightly bigger world due to people like you reading articles like this.

The default position needs to be established and established soon. The default position for someone with an average sized DC pot is not going to involve Lamborghini purchases , annuities or individual drawdown policies (with financial advice). All of these will be choices but I don’t see them as the default option.

If people can approach their Guaranteed Guidance session, confident that there is a simple and easy to manage default to fall back on, I’m sure these sessions will be a success.

But if people approach them, as many seem to want them to be, as a wake-up call then people will not be happy. People are fed up with being “woken up” to the scaremongering of the financial services industry.  We live in permanent fear of missing out on something or other which is about to be abolished or withdrawn or whatever.

The success of occupational pension schemes has largely been down to their providing people with a decision-free experience. Short of having to choose whether to join or not, most people in defined benefit schemes make no financial decisions from the day they join till the day they die.

If we take that as the default template for “success” , the question is then how do we replicate the success of these “do-nothing” DB schemes in an era when we depend on a DC pot.

The change in the paradigm will happen when we accept that “doing nothing” may be the best policy. We’ve already accepted this for DC accumulation. There may be a little more intervention from people needing to adjust the level of spend from their pension pot, but turning up the dial from GAD 100 to GAD120 shouldn’t be much more difficult than adjusting the microwave settings.

Where we need to work hard behind the scenes, is to make sure that the decumulating funds people are spending from , don’t suffer from pounds cost ravaging (see recent blog). However that is a financial services industry problem, not a problem for the consumer.

I am with John Ralfe in saying that too often, the financial services industry has blown the opportunity to meet a challenge like the one facing it now. But never before have they had to come up with answers that will be subject to scrutiny  as they will today. Not only have these products got to pass muster at the Regulatory level (tPR and FCA), they need to be sanctioned by IGCs and the new beefed up DC trust boards) and finally they are going to have to get a tick from the consumerists- Ros Altmann, Mick Mcateer, Pension Plowman et al.

So if the likes of State Street think that they can continue to operate in this market, they are going to have to seriously up their game, reduce their margins and stop stealing money from people through milking transactional costs. If these products are to be structured, we will want to know precisely what is being taken out by those providing the guarantees.

Clubs like Yeovil survive and prosper because the fan-base is  loyal and true. Nothing much changes at our club- whether we’re up or down.

That is the lesson from the Huish Terraces to those who run insurance companies, fund management houses and banks. It’s the message to the FCA and tPR, the DWP and the Treasury.

Most people want as little disturbance in their finances as possible, people want to get on with their lives and to trust that the system sorts them out.

Most people want and need fiduciaries who will act in their interests and allow them to get on with what they really want to do- live their lives.



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If we knew when we died – we’d live a bit better.

Taps FCAThe idea of a fixed term parliament is a good one, none of this uncertainty about when to call an election, everyone works with purpose to certain ends.

Life should be like , or death. Actuaries can tell you when you are likely to die (Sicilian actuaries will tell you the day).

My friend Mark Rowlinson has produced a death predictor, that allows you to work out how long you’ve left on the planet unless you do something stupid like giving up booze and fags (coffin dodging) or step under a London Bus (fast-track to Hades).

If you fancy having a go, you can press the link at the end of the blog- no cheating- you’ve got to read the bit in the middle.


The bit in the middle


Thanks for reading the bit in the middle- you can go and play with Mark’s death predictor or you can read the remaining three hundred words.


My occasional correspondent Per Andelius , has sent me an interesting paper from America,


I don’t suppose it’s the kind of question that you’ll be asked when you rock up for your Guidance session but anyone interested in how people take decisions on protecting themselves from the impact of living too long, should take some note.

The estimates in this paper suggest a large and statistically significant relationship between subjective life expectancy and retirement expectations: an individual who is one standard deviation more optimistic about living to age 75 has a greater probability of planning to work full time at 62 and 65 by 10 percent to 21 percent, respectively.

Respondents who are more optimistic about their survival to age 75 or 85 also expect to work five months longer on average.

We also find that increases over time in subjective life expectancy for a given individual are associated with increases in his planned retirement ages and expectations of working at older ages.

Finally, actual retirement behavior also increases with subjective life expectancy, but the relationship is somewhat weaker.

The results further our understanding of how survival and retirement expectations are “anchored” to the previous generation’s experience and suggest how targeted efforts at increasing knowledge about rising life expectancy may increase the proportion of younger cohorts who decide to work longer.

To translate this into everyday English (it’s written by an American Academic), this paper tells us that we view life expectancy based on our parent’s perceptions (who presumably took a cue from their parents).

Following this logic , we might expect us to still be thinking about life expectancy in biblical terms though I suspect that each generation nudges along a generation or two behind the curve.

But much more important is that when people wake up to the fact that they are likely to live longer than their DNA tells them, they adjust their behaviour and start acting a lot more “grown up”.

Which is important when we think about what this Guidance Guarantee is all about. Alan Higham reckons it’s about weeding out misconceptions and the most common misconception we have about death is that its a lot closer than it actually is.

If people use Mark’s death predictor , they may be horrified by their expected life expectancy. They may hand back the keys to the Lamborghini and take another look in the annuity showroom.

The best financial outcome for most people in later life is of course to work longer and the report suggests that once people have worked out that when they get to 60 they are only 2/3 of the way through life, they may think again about packing work in.

It took my Dad to retire at 57 to discover he didn’t like not working and  it was 23 years later that he finally clocked off for the last time.

As each year went by , he seemed to grow a little more accustomed to the fact that he was not going anywhere fast and it’s only since he finally hung up his stethoscope at 80 that he’s started thinking about the imminence of his departure.

So I’m of a mind to suggest to my new buddies at the FCA that they commission this little bit of modelling and get those undergoing guidance the chance to work out how long they’re likely to live!

Perhaps that’ll curb the Lamborghini purchasing!

Here’s the link to Mark’s Death Predictor

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Measuring the success of the Guidance Guarantee

The most interesting discussions at yesterday’s pow-wow at the FCA centred on “Measures of Success”. 

Bearing in mind the point of the Guidance Guarantee is help people make an informed choice, I’d have thought the answer was simple

The measure of success is based on whether people think they can make informed choices after getting the Guaranteed Guidance.

However there were more subtle forces at work and they all centred on people taking the “right decisions”. And as soon as you start down that track, you start seeing the conflicts of interests that so beset financial services.

Unsurprisingly, the financial advisers thought that the measure of success was that people sort (and presumably paid for) financial advice.

Those working for companies whose business was selling annuities, wanted people to buy annuities.

And almost everyone thought that people just taking their money and running was a bad outcome (though I thought I saw a  smirk on the lady from the Treasury’s face as the pound signs lit up).

The lady who I was sitting next to made a sensible comment to me- she suggested that if people left the room feeling that the meeting led to a better outcome for them, then the meeting had been worthwhile. In an age where feedback via social media is only a click away, it’s hard to see beyond the simple “like/dislike” button as the measure of success.

So we need to work backwards from the questions “what do people want?” and “what do people need?”. Most people seemed to be of the opinion that the two were not the same but I suspect that we in financial services have been so used to giving people what they don’t want dressed up as what they need that the thought of giving people what they want is a bit radical.

Rather than trying to second guess the public, the FCA would be better off asking people what they want from these sessions and what they want in retirement. Another sensible thing to do would be talk to the University of Bristol who have a dataset of 20,000 people’s financial decision making through retirement including some pretty powerful data about what people actually do (given half a chance).

The statistics do not lie (well not when they run to tens of thousands of case studies). One thing we know is that there are hardcore money saving experts who do their own thing, there are people who rely on others (financial advisers) and take informed decisions and there’s a great bunch of us who just want to do what everyone else is doing so long as it “does the job”.

I came in for a bit of stick from the financial advisers in my group for suggesting that it wasn’t a financial sin not to be too interested in all the choices and just want a “default”.

My own view is that provided a default is “good enough” then an uninformed choice is better than a bad choice. For the disinterested, the Guidance Guarantee is really important and as my friend Michelle Cracknell put it to me this morning

It would be good if more of the £20m development budget is spent on how we reach the disengaged ….

  • I would like to see a Qualifying Workplace Pension is required to offer a default decollation option in precisely the way they offer a default accumulation option.
  • I would like to see the Guidance Guarantee really valued by Britain’s retiring public.
  • And I’d like to see people allowed to take or not take a choice free from judgement, regulation or unwanted paternalism.

That way we’ll restore people’s confidence in pensions and have a bit of fun while we’re about  it – very Pension PlayPen





I haven’t named names as we were under the accursed Chatham House rules, )Michelle’s correspondence came later(. The whole deal’s being run by Maggie Craig who I hadn’t met before (but seemed really nice).

We couldn’t do the whole tweet thing but I hope that as these meetings continue, the discussion will be more “Open Government”. In the meantime I’d like people who read this to be reassured, this was a very promising meeting.

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Pound cost ravaging

workplace advice

I felt like General Melchett inspecting the trenches.

At the 21st Century Retirement Income Update I met a bunch of advisers who have since 2008 been trying to help clients make sense of the volatility in world markets , understand the relationship they’re supposed to be having (post RDR) and now coming to terms with the loss of commission from their workplace pension portfolio and the revenue streams from annuitisation,

The IFAs I met were resilient and determined to find a way to advise on the new Annuity Framework. But the anecdotes they tell of clients running out of funds to meet the income targets anticipated from drawdown were the most worrying for me.

I had not appreciated till I saw the numbers, just how ravaging the impact of global volatility can be (and yes I’ve seen the Fosters ad and yes we did talk about this over an Indian last night (thanks Will and James).

There weren’t many women, one who made it made a lot of sense – Jan Holt. She talked about the impact of drawing down a monthly income at times of extreme volatility and how the positive impact of “pounds cost ravaging” could turn into the calamity of “pounds cost ravaging when it was income “out” not “in”.

The IFAs I talked to had created a language to explain drawdown to their clients but I sensed they felt they had been let down by the investment products they had used. Neither diversification or rebalancing had been enough to meet the expectations of their clients, many of whom were drawing less than now than in the early days of drawdown fifteen or twenty years ago.

It would be easy for me to point the finger at high product and advisory charges (and this is part of the problem), but the real issue is that the kind of dynamic de-risking strategies that occupational schemes have operated for years , simply haven’t been made available.

It was good to see Tristan Edwards of Axa talking about harnessing Alliance Bernstein to deliver more stability without resorting to the purchase of structured products.”what took them so long?” was the comment from one delegate I heard.

The harsh reality for IFAs is that it is they who are accountable for member outcomes and for the ravaging of income expectations that has happened to many clients.

The investment solutions rest are available in the institutional market and the structures to deal with the squeezed middle are available to create collective schemes. But there is no joined up thinking as to how we can link the proven effectiveness of de-risked collective investments to the problems of Britain’s squeezed middle.

This must surely be the focus of the FCA as they struggle with the delivery of the new Annuity Framework barely 11 months till launch.

There are now only 22,000 surfing appointed representatives (down from 300,000 in 1998). Those that still practice are skilled , effective and battle-scarred. Anyone of them could do a better job talking about the problems of delivering guidance (let alone advice to the half a million retiring next year.

But in as much as I can speak for those at the conference and those who I met in the evening, I will.  The Money Advice Service is loathed- that much everyone is agreed on, annuities are loathed- an 80% fall in sales was what I heard from the annuity brokers in the room, but drawdown is feared. Feared because IFAs know what happens when it goes wrong. Every tax expert I met (and Tony Wickenden spoke in the afternoon) agreed that busting money out of a pension into a deposit account- just for ease of access- was a gift to George but nobody has yet thought of a system where money can stay in the pension and be managed out over time.

Those who have read this blog over time know my views, the answer rests in collective accumulation (target dated pooled funds) and collective decumulation – predictable drawdown as the Friends of CDC have it.

All this will sound cosy and trite to the angry and frustrated IFAs I spoke to, they have no-one to shout out for them in Brighton ,Canary Wharf or Westminster.

In truth, if they knew him- they have Alan Higham and Billy Burrows and Darren Dicks without whom much of the annuity reform wouldn’t have happened. I’m hoping that the Treasury are talking to them but they should also be speaking to the likes of Melvin Wyatt,Robert Brear, Simon Fritton and Barry Lipkin whose cards sit on my desk this morning. These are the guys who will have to do the heavy lifting and they have seen their practices ravaged too often to see reform helping them do their job.

I’ll be thinking of them on Friday. It was a great day, a real learning day for me and I’m grateful to Money Marketing for the opportunity to do my General Melchett bit.

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Why employers cannot be “provider agnostic” about their workplace pension.

workplace adviceOn the 21st March 2013, a few days after the budget, the FCA published a “Guide to the regulation of workplace defined contribution pensions”.

The document’s mainly about giving pension people confidence that the Pension Regulator and the FCA are friends, that their work “dovetails” with each other (tPR’s jargon) or is “joined up” (FCA jargon). Now we all know that the DWP and the Treasury don’t get on and that their Regulators yap at each other as their master’s dogs, but in this paper the two bodies do seem to have sat down around the same table for the greater good.

I have no doubt that they will be (probably already are) at each other’s throats but in this rare moment of regulatory harmony, some important policy statements emerge.

Take this little nugget

When they choose a pension scheme, employers will not necessarily compare contract-based schemes with trust-based schemes. If employers do compare scheme types it will likely be with help from professional advisers. Many employers, especially smaller ones, may simply accept the scheme they are presented with. The employer may not know whether it is contract-based or trust-based.

This underlines how important it is that the quality of any scheme an employer chooses can be assured regardless of its type.

Or this (which is my desktop screen saver for Q2 2014workplace adviceThat last message is going to be on every communication I send to IFAs, accountants, bookkeepers, payroll operatives and journalists talking to employers about auto-enrolment.

So a lot of good came out of the cease fire!

Last week I went to the CIPP’s “Capacity Crunch” event in Covent Garden, keen to talk turkey about how we can get employers to choose their workplace pension – or at least find where there is capacity in the market for them.

To my disappointment, news that “advice to employers on scheme selection is not regulated” had not got as far as the august bodies in the room. Indeed when pressed to confirm the position, the Pensions Regulator looked a little confused himself (albeit it was the wonderful Neil Esslemont who works for the auto-enrolment rather than the workplace pension division of tPR).

So for the avoidance of doubt, let’s get everyone on the same page. Employers can choose from any workplace pension provider offering a qualifying workplace pension scheme (a WSPS). The definition of “Qualifying” is currently quite feeble but will be beefed up with the introduction of minimum quality standards in 2015 and again in 2016 when schemes which are in place but don’t quality will have had to strip out non-qualifying features (commission, AMDs etc).

So with this regulatory easement, we would have hoped by now to have seen some help in place from those in the know, to help small companies to choose a workplace pension. The Pension Regulator and the ICAEW and the FCA and the other august bodies I speak to , tell me that they could not possibly endorse one of the multitude of services available to small employers.

Well I wasn’t expected endorsement, but I was expecting competition! Can someone tell me (other than one service that provides online assistance to small companies and their advisers in sourcing and selecting workplace pensions for their staff?

I’m not talking the “give us £5k and we’ll write you a report” merchants. I’m talking about online information such as you’d expect to get when buying a dishwasher or a new car or – if you’re an SME, your next photocopier/payroll software or accountancy service.

There isn’t even a directory of workplace pension providers for you to ring up!

For all the freedom given to SMEs to choose a pension for staff, there is simply no infrastructure with which to do it!

I can phone up NEST or NOW or L&G (and I know a lot of employers do). I may as an accountant or bookkeeper or IFA be able to follow the onboarding instructions on the websites of People’s Pension, Standard Life or Bluesky but I have no way of comparing one from another.

In fact, the ignorance of those organisations staging auto-enrolment from 2015 seems to be matched only by the ignorance of their advisers as to what makes for a good workplace pension.

The absolute folly about this is that all the long term-reward and all the long-term risk rests with the choice of the workplace pensions.

If you choose a workplace pension that consistently underperforms over the next twenty years, your staff might get a pension a third less than if you’d got the decision right. Now no-one can predict performance, but if you as an employer pick a loser and your staff suffer, questions will be asked.

And the first question that will be asked is “why did you choose that dog of a pension boss”.

And if the answer is that it was the one we were “presented” by our adviser, or the one that the Government did or the one we saw on the door of the taxi, then that answer is not going to be good enough.

Because we are not talking any old rubbish here, this is the investment vehicle that your staff are going to rely on for their Lamborghinis, Robin Reliants or more sensibly their top-up income to their state and occupational scheme benefits.

What’s more it is their money and not yours that you’re investing.

So if you can’t come up with a coherent document that properly audits the decision you’ve taken, you are going to be found wanting if (and lets hope it’s not a when) you’re workplace pension is found wanting.

It’s not an issue of regulation- it’s an issue of competence. Sadly there simply is too little  competence in the market. Unless you go to a reputable advisor who researches workplace pensions, has the links to the providers to tell you who will offer you (specifically) a workplace pension and has a means to help you compare and choose the workplace pension for your staff, you are on your own. And getting the service outlined above is not cheap, nor is the report that documents and future-proofs your decision.

Nobody is saying that this is a problem (yet). That is because it is not a problem (yet). Up and till now the employers taking decisions on workplace pensions have had an advisory budget. Going back to the earlier gobbet from the FCA

If employers do compare scheme types it will likely be with help from professional advisers.

Many employers, especially smaller ones, may simply accept the scheme they are presented with.

Recent research published by the Pension Regulator confirms the research commissioned by NOW and published on this blog (here). It seems that pension advisers are likely to become less important and reliance is going to switch to accountants, bookkeepers and HR and payroll administrators.

But while awareness and technical capacity amongst such experts is high on the technicalities of auto-enrolment, the research finds ;

Fewer payroll administrators and HR professionals planned to offer help in choosing a pension scheme (29% and 12% respectively) or reviewing a pension scheme (27% and eight percent respectively).

And it’s not until page 50 that the real meat arrives on the bone. Once we get beyond the in-house experts, there remains the external advisers.

small micro

Whereas most small employers are expecting help from their current advisers. these advisers are by and large not planning to be much help! These statistics come from the auto-enrolment division of tPR, asking these questions about the workplace pension, the stats show considerably less

Fewer small/micro business advisers planned to offer help in choosing (35% of accountants and 26% of bookkeepers) or reviewing a pension (33% of accountants and 26% of bookkeepers)

The FCA’s answer to the problem seem to be to rely on the Minimum Quality Standards which have subsequently been published in the DWP’s command paper.

But even with minimum standards in place, there is still going to be considerable variance in the performance of one workplace pension over another.

The durability of many of the propositions we research is virtually zero- a large number of master trusts and some contact based providers do not have credible business plans and without a substantial cash injection or change in strategy, will not survive under the new standards.

Many providers have no game plan to offer the Guidance Guarantee from this time next year and have at retirement options that didn’t pass muster before the budget (let alone when we have Freedom of Choice.

Trying to create a sound rationale for the default investment option (let alone the sub-funds) for most providers is very hard to do. It is hard to see some  providers creating credible accumulation strategies  (let alone decumulation strategies) within the next twelve months (given that many have paid investment no attention in the past 12 years).

HR and payroll interfaces with providers continue to be a problem. Origo have now given up on creating common auto-enrolment standards for insurers and compatibility between your payroll and HR systems and the providers remains a lottery (there is no definitive matrix for employers to refer to when establishing a plug and play workplace pension.

And communications with staff over what is going on with auto-enrolment, where their money is invested and what options they have to maximise the  value of their savings remain at best patchy,

At, we are saddened by the slapdash way in which employers are choosing workplace pensions and the complacency of their advisers who seem solely intent on selling payroll and HR middleware.

We are saddened too by the lack of engagement with these issues by the major accountancy bodies, ICAEW, ACCA and CIMA. We do not see any appetite among financial advisers to advise on the choice of workplace pensions , nor from accountants and bookkeepers, nor from employers directly.

In short, we see employers walking into workplace pensions without any knowledge of what they are choosing and without advice at hand to make the choice. IFAs are walking away from the pension decision and neither the internal experts or accountants and bookkeepers are intending to help on pension selection.

This is where the real crunch is coming and because we are all so obsessed by the regulations surrounding the auto-enrolment process, we are forgetting that it’s the workplace pension which is what this is all about.

Our website is a resource for all types of advisers and for employers who don’t take advice. It does the  job of finding who will provide pensions to each applying employer , it gives constructive help on which to choose and provides a full audit report on the decision taken. What’s more it does all this in next to no time and for a cost of less than £500.

We need the FCA and the Pension Regulator and the FCA to stay joined up (at least till 2017!) and to start promoting very urgently the need for proactive decision making on the choice of workplace pensions.

We need employers and their advisers to start taking workplace pensions a little more seriously and we really need the FCA and tPR to stay joined up and start promoting the workplace pension decision as critical to the long-term credibility of auto-enrolment

It is simply not good enough to be (to coin the adviser’s phrase) “Provider Agnostic”.

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How we see the new annuity framework working

hi res playpen

Pension PlayPen response to the Treasury Paper

“Freedom and choice in pensions.”



Pension PlayPen Ltd trades as and is a leading portal through which employers and their advisers access information establish workplace pensions.

This response has been written by Henry Tapper, Founding Editor of Pension PlayPen. Pension PlayPen has a significant shareholding in First Actuarial, a company of which Henry is also a Director.


First Actuarial is responding separately to Pension PlayPen but both our responses are driven by a common purpose – improving member outcomes


Both companies have campaigned hard for a reform of the Annuity Framework, the option to de-cumulate collectively and for better Financial Education at Retirement.

Neither company takes commissions from members; we consider ourselves healthily independent of any of the vested interests that so conflict the majority of firms commercially involved in retirement advice, guidance and provision.



The Pension PlayPen is pleased to respond to the consultation in the Treasury’s paper, “Freedom and choice in pensions”. It was a pleasure to read and it is a pleasure to respond.

The focus of the paper’s thinking is the Individual’s decision at retirement. Decision making at this stage of life is poor and the public have become disenchanted with the retirement choices with which they have been presented. We need to restore the public’s confidence in pensions and in DC pensions in particular.

Much has been written in praise of the reforms proposed in this paper, we simply want to add our voice to the chorus. These reforms, though overdue, are very welcome! They go a long way to restoring the public’s confid


The paper asks 10 questions; we will confine our response to answering each



  1. Should a statutory override be put in place to ensure that pension scheme rules do not prevent individuals from taking advantage of increased flexibility? 


There is no need for such an override so long as a right to transfer is available. Members can (with the right to transfer) impose a voluntary override and transfer to another qualifying pension scheme.

Trustees have had to be careful of late because of pension liberation (the risk of which will reduce because of these regulations). We think that a statutory override would have perverse consequences and could assist those fraudulently operating pension liberation “scams”.

Trustees have a duty of care towards members to ensure they are protected and where valuable guarantees are in place, this can create a conflict between this duty and the opportunity to take advantage of new flexibilities.

This conflict is especially difficult where the impact of a member taking a transfer is to reduce scheme liabilities, reduce a notional deficit and improve the scheme’s covenant to existing members. A statutory override could destroy the careful balance within schemes that manages these conflicts without compromising members.

An override would of course also benefit sponsors who, under a balanced of cost arrangement. It would undoubtedly result in a reduction in deficits and reduced cash calls from the trustees.

But improving the solvency of Defined Benefits Schemes is not the point of this legislation. On balance we would favour a retention of the trustee’s current powers and the promotion of the rights of members to challenge the misuse of these powers through the Pensions Ombudsman (TPAS being an important mediator).

This answer directly relates to our answer to question 9 which we take to be posing the same question to Fiduciaries. We oppose a blanket ban on transfers from occupational schemes for the same reason.


2. How could the government design the new system such that it enables innovation in the retirement income market? 

The Government should encourage innovation provided that that innovation is for the member’s benefit. An important feature of this must be the continued use of trusts and the formative Independent Governance Committees to provide collective solutions.

We see the future market for product providers dividing into three;

  • The first is a pure consumption model where people take their money and buy Lamborghinis (or Robin Reliants). For these people, only traditional deposit products will be helpful. No need for innovation here


  • The second is a wealth management model where individuals will ask an adviser to manage their retirement savings in a private portfolio, operating drawdown on a bespoke basis, there are a number of discretionary fund managers and drawdown products in the market who will cater for this need.


  • The third (and default) model is for the average savers who want more flexibility than they are given from annuities, but a degree of certainty and lower costs than that available from the DFM/drawdown wealth management sector. We could call this model “predictable drawdown”.


Innovation is needed to meet the needs of the average saver and the Treasury can do much to help by working with the DWP on its Defined Ambition agenda.


Currently there is not financial model which provides predictable drawdown at a reasonable cost (we can define this as the default charge cap on workplace pensions – 0.75% pa). We see this model as becoming collective and having many of the characteristics of the “scheme pension” provided by occupational schemes.

This kind of low-cost, predictable drawdown, product is best managed collectively (as it is in many European countries). Collective decumulation products have advantages in terms of risk pooling, cost sharing and overall governance and should be encouraged by Government as a means of providing a middle way between unwanted guaranteed products (annuities) and overly engineered wealth management.

We hope that the Government will take advantage of work done on Collective DC as part of the DWP’s Defined Ambition consultation to facilitate such collective decumulation products.

An opportunity to bring such legislation in this parliamentary term exists and we hope that the Queens Speech on June 3rd will introduce the powers for the Government to allow such arrangements to be introduced and prosper


3 Do you agree that the age at which private pension wealth can be accessed should rise alongside the State Pension age? 

Yes we do. It is important that Britain is culturally in tune with the change in its demographics. There is no point in giving one message on the first pillar and another on the second. The pension system should be consistent and we should continue to mark periods when people should be accumulating and periods when they should be spending their retirement savings, if only with minimum ages at which spending from approved pension arrangements can begin


4. Should the change in the minimum pension age be applied to all pension schemes which qualify for tax relief? 

Yes, the qualifying rules are important here as there are a number of “non-qualifying” pensions which are unapproved which should be treated separately



5. Should the minimum pension age be increased further, for example so that it is five years below State Pension age? 

No, the flexibilities within the proposals allow for people to use their pots as bridging arrangements, the proposals provide scope for such bridging for up to ten years and while this is longer than would normally be found in occupational schemes, it is not so long as to suggest there will be many who will run out of savings. People in their fifties and early sixties are generally employable and have the option to return to the workplace if needs be.


6.  Is the prescription of standards enough to ensure the impartiality of guidance delivered by the pension provider? Should pension providers be required to outsource delivery of independent guidance to a trusted third party? 

Yes, the prescription of standards is enough.

The providers will be under intense scrutiny over the delivery of advice. While we don’t expect advice to be the same across all providers- (some providers offering provider-specific solutions, some not), we expect the framework within the advice is given to be the same.

Non-compliance with the framework would lead to unwanted bias and threaten impartiality; but equally, over-regulation would leave little incentive for providers to compete on the quality of advice and scope and quality of retirement options available. currently operates a balanced scorecard which measures providers against six metrics, one of which scores “at retirement options”. We have been operating this scorecard for a year and we expect this metric to receive higher weightings from employers as they recognise the importance of delivering the Guidance well.

As regards independence, we don’t consider this particularly important. Having worked as an IFA, and an appointed representative of an insurance company, Henry would say “the quality of the training that delivers independence, not the paymaster”. If an adviser is trained to be independent he or she will deliver independent advice, if the training and incentivisation is to deliver against product targets, the advice will not be trusted. Trust will come from the delivery not the branding – the proof of the pudding will be in the eating.

Providers should have the choice of using existing resource, training future resource or in-sourcing resource from outside. They should not be allowed to outsource resource and/or their fiduciary responsibility for its delivery


7. Should there be any difference between the requirements to offer guidance placed on contract-based pension providers and trust-based pension schemes? 

No; if an organisation is prepared to offer an occupational DC scheme solely for its employers it should be responsible for the outcomes of that scheme (at retirement).

Commercial master trusts should relish the opportunity to provide guidance at retirement and should step up to the plate and offer at retirement options that mirror the accumulation phase (providing rather than absorbing income).

Occupational schemes that cannot afford to provide the Guidance Guarantee will either have to wind-up and transfer assets into master trusts or switch to an insured basis where the insurer will provide the guidance.

Providers should welcome the opportunity to provide guidance. As with the master trusts, the commercial prize of managing a decumulating pot should be as attractive as managing an accumulating pot. We should not be propping up occupational pension schemes on the basis that they have not the resources to help members get good outcomes.


8. What more can be done to ensure that guidance is available at key decision points during retirement? 

We absorb information in new ways. The broadcast and social media are the primary sources of information for most working people. Financial Services companies have been slow to pick up on the new media opportunities, citing regulatory constraints. We see the obvious means of delivery to people as being television, radio, You Tube, Facebook and Twitter- this is where most people go for information today.

The answer will be different tomorrow but it is up to the financial services industry to reach its audience, it should not be the other way round. Websites such as are now used by millions of Britains in preference to newspapers, libraries and Government sponsored portals.

The Martin Lewis Money Show and Money Box are two examples of the use of broadcast media which have become free-to-use mavens for information on a wide range of subjects. Both Martin and Paul Lewis use websites and social media interchangeably with their broadcasting

Similarly, the on-line money pages of several of the national newspapers are now mainstream sources of financial guidance. More conventional media sources such as newsprint will continue to be important but it will be digital information, especially information that can be delivered by smartphone and tablet, which will drive the delivery of choice.

The Government should be using all available media outlets including those mentioned above. It should also pay attention to the work of and the blogs on !



9. Should the government continue to allow private sector defined benefit to defined contribution transfers and if so, in which circumstances? 

The right to transfer should not be taken away. The incentives to transfer will increase from 2015 and many sponsors may want to de-risk by promoting transfers. But we have trustees who by and large act for members rather than sponsors and provide checks and balances to ensure that members are aware of the benefits they give up (guarantees).

We would favour strong guidance from the Pensions Regulator to trustees on what can and should be said to members requesting transfers. Effectively this is an extension of the work it is already doing on “pension liberation”.

TPAS and the Pensions Ombudsman are further checks in place to protect member’s interests and overall we think there is sufficient resource from consultancies and third party administrators to ensure a voluntary code of good practice on transfers that stops short of a blanket ban.


10 How should the government assess the risks associated with allowing members of private sector defined benefit schemes to transfer to defined contribution under the proposed tax system?

The reference for an assessment should focus on the interests of the member. It is far from certain that defined benefit schemes will provide better retirement outcomes for all. Single people, especially those in poor health subsidise healthy married people (as an example).

The shape of the retirement income (indexation) suits the majority of people retiring from a defined benefit scheme but not all. Evidence of the popularity of pension increase exchanges where people choose to swap pension increases for higher initial pensions suggests that many people do not consider indexation that valuable.

So we’d argue that the risks need to be assessed against people’s retirement needs and not against some arbitrary construct produced by groups with a vested interest in maintaining the status quo. The obvious vested interest group is the public sector who have most to lose in terms of benefits.

An independent commission could be set up to look at this question from the point of view of the member of a private sector defined benefit scheme. Once an assessment has been made of the risk to the member, secondary considerations such as the impact on scheme funding, collateral risks to public sector pensions and the impact on the financial services industry can also be taken into account.

But it is the individual’s interest that is paramount.


Henry Tapper

April 2014

Posted in accountants, actuaries, advice gap, annuity, auto-enrolment, Payroll, pension playpen, pensions, Public sector pensions | Tagged , , , , , , , , , , , , | Leave a comment

Pension PlayPen response to the DWP Command Paper on Workplace Pensions

 hi res playpen


Pension PlayPen Ltd trades as and is the leading portal through which employers access information to stage auto-enrolment. The site allows employers to assess their workforce, determine a contribution structure, apply to workplace pension providers for terms and choose the most suitable provider.

This response has been written by Henry Tapper, Founding Editor of Pension PlayPen. Pension PlayPen has a significant shareholding in First Actuarial, a company of which Henry is also a Director.

First Actuarial is responding separately to Pension PlayPen but our responses are driven by a common purpose – improving member outcomes.



 The Pension PlayPen is happy to respond to the DWP’s Command Paper “Further Measures for Savers”. It was a pleasure to read and it is a pleasure to respond.

The focus of the paper’s thinking is the “member’s interest”. As with the FCA’s “treating customer’s fairly”, this phrase must become the touchstone for DC governance. We wold urge the Government to continue banging on this drum.

The Paper sets out a governance framework for DC workplace pensions that we think is workable and effective. It will be tough on small occupational schemes and will ensure that only the most committed master trusts and contract based providers offer Qualifying Schemes.

While this is tough, it is fair. As we mention later in this response, consolidation is happening in other countries, most notably in the Netherlands. The economies of scale granted large schemes are essential for savers. Only with scale can we sustainable levels of service and value for money backed up strong governance.

The current system which relies on governance at employer level is not tenable even for the 10,000 employers who have staged auto-enrolment. A new system is needed for all but the largest employers and crucial for the 1.2m employers still to stage


You ask for views on the potential benefits of accreditation of administrators and what role Government and regulators could play in supporting this.

We agree with proposals mooted recently by tPR (a code of assurance and reference to PASA standards). Pension administration is a low-margin high risk business and is one of the few areas of financial services that has a truly transparent fee structure. Minimal reform is needed but promotion of best practice is to be welcomed. So rather than reinventing the wheel, we would want reform to refer to Margaret Snowden’s excellent work with PASA.

We would support this job being given to PISA who have down ground-breaking work on standards. There is a need for Origo and TISA to work with PASA to create a framework that includes both insured and non-insured contract based plans. We would also like to see the CIPP and CIPD provide input to any standards.

Clear leadership is needed here and Margaret Snowden and her team have already demonstrated their capacity to set standards (with the code of conduct for Enhanced Transfer Values).

You welcome suggestions of other approaches to helping trustees and IGCs ensure that their scheme is being administered to a good standard. 

As discussed above, there are a number of other organisations with skin in this game. Each could make a case for leading but neither Origo nor Tisa can bring the depth of understanding and a track record of leadership shown by PASA.

We would strongly argue against the setting up of a Government Body to set and control administrative standards. The skill set doesn’t sit within any Government department and the depth of technical understanding needed to both establish standards and develop them over time is too specialist a job for BSI or similar standard setters.

We see scope for nationally agreed service standards and a framework Service Level Agreement (SLA) which can be signed up to by any administrator wishing to be accredited to run Qualifying Workplace Pension (QWP) arrangements.

By way of example, the requirement on IGCs that “core scheme financial transactions are processed promptly and accurately”, requires metrics on what timescales define “promptly” and what tolerances define “accurately.

This can be across the board, master trusts, single employer trusts and contract-based arrangements can work to a single SLA.

You ask whether master trusts should have to meet the same independence standards as providers of contract-based schemes?

They should; currently the door is open to any commercial organisation to sell “vertically integrated” product to employers bypassing many of the FCA rules and with little regard to the fiduciary obligations that underpin trust-based provision. We are currently seeing an explosion of such master trusts offering Discretionary Fund Management (DFM) from financial advisers.

The barriers to entry are ridiculously low and the potential for consumer detriment is high. Master trusts should be treated “for QWP purposes” with the same regulatory rigour as IGCs

We hope that when the FCA completes its work on the governance of contract-based plans, it will draw the same conclusions and implement the same standards as are proposed for trusts in this consultation.

You would like views on the proposed definition of ‘independent’ at Annex B.

We agree that the balance should be with independents but we think 7 is too many, we think 5 is better. Better decision making results from smaller groups- there is little extra wisdom from seven.

You ask whether the independence requirements be applied in different ways to different models of master trust. In particular, how should the independence requirements be applied to master trusts that use an independent trustee firm to act as their corporate trustee? 

We are very concerned that independent trustees could become little more than Fiduciary Managers, opening the door to regulatory arbitrage. There is a need for diversity on a trust board and no matter how “arms-length” an independent trustee may claim to be, the act of appointing one in a corporate capacity (without the diversification of other viewpoints) is disquieting.  The problem is exacerbated by there being no formal qualification for independent trustees.

You would like views on the proposed quality standards for trust-based governance which are summarised at Annex B 

We are impressed with Annex B which looks to be comprehensive. We hope that this more principled approach will supersede previous frameworks (especially the 31 DC Characteristics and the 6 DC principles which don’t do it for us. We like the 6 Good DC outcomes which preceded these latter documents- precisely for the reasons we like the quality standards in Annex B- they are governable!

Our suggestion for improvement is presentational. “Acting in members’ interests (both active and deferred)” should be at the top of the list and should be the guiding principle that covers all duties (whether for trust boards or IGCs)

You ask if the requirements listed at paragraph 8 are the right quality standards to be set in regulations for trust-based schemes? 

We think they are the right requirements. We would welcome more detail on enforcement because we have seen such rules flouted in the past.  A strong approach to enforcement, especially on rules governing conflicts are imperative, the temptation to use trust based schemes for purposes other than the member’s interests will otherwise prove overwhelming (as has been proved often in the past)

You ask whether trust-based schemes be required to have a chair of trustees? 

Yes, there needs to be accountability and the Chair should be the spokesperson. We like the independent audit that assures the Chairman’s report is meaningful and accurate. We expect the report and accounts to be published in a meaningful way. This is one area that social media can and should help.

You ask whether the new reporting requirements help drive compliance with the standards and regulation of these? 

They will do two things, firstly they will focus minds and ensure delivery, secondly they will be too onerous for many trust based schemes (and maybe some contract-based providers). If this means consolidation in both sectors of QWP, then we are for it. There are too many schemes taking up too much resource for the good such proliferation does.

We note that in the Netherlands, the number of Pension Funds has almost halved in the past five years and with 60 schemes in “special measures” and a similar number in the process of wind-up, it is expected that the total number of funds will be around 100 in three years.

In the UK there are 40,000 occupational schemes and a further 2600 contract based arrangements. We are not sure how these contract based arrangements are defined but we think there are too many of them.

If, as we suspect, the definition of contract -based schemes is that they have registered themselves as single employer stakeholder arrangements, then the principal governance issue is that these schemes may have an employer defined default fund. The Command Paper is silent on this issue but it is important.

Many employer defined defaults will be different to the default considered by the IGC (the default default). In our view, contract based plans should offer a single default and employers should not be offering their own variant unless they themselves will operate an IGC.

We think it unlikely, faced with the onerous duties of an IGC,that many employers would persist in running their own default.

While this is beyond the scope of this consultation, we hope that the DWP will pass on these comments to the FCA. The same approach should apply to trustee selected defaults of single employer default funds (many of which are not fit for purpose).

You welcome views on whether the transparency requirements we propose for DC schemes should, in the future, be extended to DB schemes, to enable sponsoring employers to further scrutinise the costs of such schemes. 

We think this will happen as a matter of course. Many of the pooled funds used by DC schemes are also used by DB schemes (especially smaller DB plans). Larger DB plans know (or should know) what they are paying by way of transaction costs. Smaller DB plans will be able to find out what they are paying through information in the public domain as a result of DC IGC and Trustee disclosures.

It may be sensible to require trustees of DB plans to pay the same attention to transaction costs as DC trustees but the imperative of member protection is not so strong when the transaction costs are being passed on (via a balance of costs arrangement) to the employer. We would expect most employers to be considerably more vocal about cost management than the average DC member!

You welcome views on how these transparency requirements could be made to work effectively in unbundled trust-based arrangements (including master trusts).

One of the problems with workplace pensions is that asset managers have not seen themselves as fiduciaries in their own right. Consequently they have been more focussed on marketing their product than on the product’s outcomes. This has led, in some cases, to a focus on headline wins “stock selection, asset allocation” without regard to the costs of implementing trades.

By turning the microscope on the trading costs of fund managers and demanding they are fully reported to trustees, fund managers will be required to pay attention to what really matters to members, the performance delivered (net of all costs).

But this will also require trustees of DC schemes to be aware not only the importance of transaction cost management , but to be able to measure whether they get value for money from the transaction costs borne by members.

We continue to support the measures outlined in our earlier submission to the Reinvigorating Workplace Pensions paper which goes into some detail on this.


In conclusion

We are very pleased we will have the opportunity to discuss these matters further with the DWP.





Henry Tapper

April 2014

Posted in auto-enrolment, dc pensions, DWP, FCA, governance, investment, pensions | Tagged , , , , , , , , , , , | 1 Comment

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.


This post was first published in

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The Pension Regulator explodes ten common myths about auto-enrolment (slideshow)



The Pension Regulator’s auto-enrolment team is excellent. Thanks to a Friend of Auto-Enrolment, Neil Esslemont, for these excellent slides which are a must read for anyone advising on or staging


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McIlroy and Faldo – the face of golf has changed

Stella and I were lucky enough to get to the first day of the OPEN (not the British Open). and to watch Rory McIlroy stride though 15 to 18 on the way to the first of two consecutive 66′s.

IMG_5137 IMG_5136

Two holes behind ,our Eton neighbour, Sir Nick Faldo, a hero of yesteryear but still a champ. We are currently using his hoover as we share the same house cleaner
IMG_5140 IMG_5142 IMG_5143I suppose it’s inevitable that old gives way to new, but these pictures say to me just how time moves on!

At the time of blogging, McIlroy is six shots ahead of the field after this masterful sequence of shots bought him an Eagle at the 18th.


And who’d have ever foreseen the organisers of an open championship tweeting the final day pin positions!

Pin positions

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What employers want to help them choose their pension.

Beyond compliance

The Pension Regulator has commissioned some research on what small employers want from pensions. I can share with you some of the key findings

“48% of small and 79% of micro employers currently have no pension scheme so will have to choose a new one as they prepare for AE”.

“Around one in ten will be self reliant and don’t know how to select a scheme or think it will be difficult (approx 130,000 employers).”

Our qualitative research suggests self reliant small and micro employers fear choosing a scheme and want to understand what schemes are available before making a choice –they will rely of a mix of personal recommendations, internet searches, comparison websites and TPR’s website for information.

Other SMEs will turn to their accountant or bookkeeper for assistance with finding a pension scheme, yet only 41% of accountants anticipate helping their clients with this and they are not necessarily better informed than their clients.

The problem does not go away in 2017 - approximately 200,000 employers are ‘born’every year, many of which will need to find a new pension scheme.

And this is what SMEs and micros are telling the researchers they actually want

  • Simple practical steps on how to choose a pension scheme without having to understand scheme types

  •  Practical questions to ask to ensure the scheme is suitable (e.g. can I buy it direct, will it do everything I need to do)
  • Shortlist of AE schemes available to them
  • Ability to compare charges and any employer fees of shortlisted schemes
  • Ability to compare wider AE support offered by scheme (e.g. workforce assessment , communications to workers)

workplace adviceYou don’t have to be a pensions expert to help your client select the correct pension. provides you with a simple search engine which allows you and/or your clients to understand the choice and download a full audit report on the decision taken.

To register for the service go to



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Note to @stevewebb1 – My Pot can follow me to CDC.

What I won't be buying with my big fat pot

What I won’t be buying with my big fat pot

John Ralfe, at a City seminar claimed there was no appetite for CDC either among employers or among members of pension schemes.

Well I disagree; the people I talk to who are not in pensions say they want change- new and better product that doesn’t ask them to become investment experts but provides them with a reliable income in retirement (pension) , effeciently – without disrupting people’s lives.

When you outline CDC it seems to fit the bill

  1. It provides a reliable income stream in retirement paid into bank accounts with a minimum of fuss
  2. While it doesn’t offer a guarantee that the income won’t fall, it promises a higher target pension than could be achieved from buying an annuity,
  3. While it doesn’t offer the flexibility of individual income drawdown, it is cheaper and less hassle and is likely to provide more predictable outcomes.
  4. CDC doesn’t need you to employ a financial adviser.
  5. CDC can be used both to accumulate and decumulate pension savings (or do one or other)

There are two things in particular that people moan about when quizzed on pensions

  1. The experience “at retirement” .

  2. The proliferation of small pension pots that people pick up over the years.

The budget freedoms and the Guidance Guarantee (details of which will be published next week) are likely to ease many of the fears people have at retirement. But the project to help people bring their pots together (pot follows member) is still awaiting a solution.

I’ve campaigned for pot follows member for 18 years (when at Eagle Star in 1998 we submitted a proposal for a clearing house to John Denham – the then minister for pensions).

It won’t happen without cost. As with moving house, moving pensions triggers all kinds of costs equivalent to those of  conveyancing. Whether these are picked up by the ceding arrangement, the new arrangement or charged directly to the member, these costs are real and will ultimately be met from the fund (one way or other).

The NAPF wanted a series of super trusts to receive the monies, a solution initially rejected by the DWP in favour of the pot follows member idea where your last pot is transferred to your next pot till you have “one big fat pot” at retirement.

But this solution preceded the decision to press ahead with CDC. CDC schemes need to be huge to work and they need assets up front. So far it has been assumed that they will only work with a big fat sponsoring employer behind them or a master trust bringing together a number of smaller employers.

The idea that a CDC scheme could be set up just to receive transfers from small pots has not got much airplay (so far) but it ticks all the boxes. CDC is the super trust that the NAPF demanded.

  1. CDC’s major strengths come into play post retirement, they can provide reliable smoothed income streams through the pooling of investments and they can insure longevity through pooling of risk. So transferring small accumulated pots into a superfat CDC pot at retirement makes a lot of sense
  2. The providers of pension savings are not best placed to provide a mass market alternative to annuities. Frankly they aren’t good at pension payrolls and they aren’t showing much appetite to build mass market decumulation product.
  3. CDC schemes are likely to be huge and we don’t expect to see many of them, they’ll be super-governed and accreditable with a “pot-follows-member” kite mark
  4. CDC could be the safe haven product into which pots can be tipped without having to have complex advice- they are the game changer the public need to take action.

There are around 100m small pension pots in the UK. Some of them are very well managed with low charges and sound investment strategies. But most of them malinger in legacy arrangement with high charges, un-managed investments and provide poor information to the member.

The majority of the estimated £350 bn in these arrangements is ripe for transfer if only a good home could be found for it and if only the “conveyancing” costs can  be minimised. No doubt there will be advisers who will point out that some of the £350bn cannot be transferred carrying guarantees that should not be lost.

Tom McPhail and PASA have put forward a passport system which would deny safe passage to pots which carry such guarantees but give free passage to the bulk of the money.

Pot follows member is a good idea with no obvious means of execution. The long-term future for PFM is the system of Collective Defined Contribution that is currently being legislated for.

John Ralfe is right to ask whether there is a need for CDC. I hope that CDC will get traction both as an accumulation and decumulation vehicle, but I know it would get popular support as a means of bringing together DC pots and paying them back to members  collectively.


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Ros Altmann’s presentation on the merits of employing #olderworkers

  According to Office for National Statistics estimates, in the next 10 years there will be 700,000 fewer people aged 16 to 49 but 3.7 million more people aged between 50 and State Pension age – a fundamental shift in the age distribution of the UK workforce which industry cannot ignore. While the UK employment rate for 55 to 64 year olds is around 60% and growing, the recent improvement has been relatively modest compared to many other nations, and several countries achieve employment rates of around 70% or above – so there is significant room for improvement.
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