Cold turkey

cold turkey

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

My first worry relates to MAS’ independence.

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

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

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

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

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

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

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

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

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

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

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

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

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

My third worry relates to the customers of this advice.

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

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

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

My final worry is for MAS itself.

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

And now three questions.

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

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

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

Will MAS be bold and promote feedback from day one?

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

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

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

Can MAS pull it off and redeem itself?

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

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

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

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

Glad you did


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

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

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

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

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

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

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

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

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

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

Here’s what he wrote us!

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

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

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

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

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

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

the pitch


Posted in auto-enrolment, pension playpen, pensions, Retirement, the pitch | Tagged , , , , , , , , , , , | 13 Comments

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

Racing in Windsor 005


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

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

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

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

So here’s our pitch!

hi res playpen

Who are we?

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


ae infographic

What’s our market?

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

Hilary Salt


What’s our solution?

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

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

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

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

pensions robbery

What are our threats?

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

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

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



How do we make out money?

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

the pitch

Why do we want to win the Pitch?

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

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

Posted in advice gap, auto-enrolment, corporate governance, dc pensions, NEST, pension playpen, pensions, Retirement | Tagged , , , , , , , , , , , , , , , , | 3 Comments

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

girl in a bar

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

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

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

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

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



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

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


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

How can simplified advice be NOT a recommendation?

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

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

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

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

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

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

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

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

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

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



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

girl in a bar

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



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

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

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

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

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


hi res playpen


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

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

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


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

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

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

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

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

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

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

CDC- the default decumulation product

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

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

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


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

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


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

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

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


Thank you for reading this,

Henry Tapper Pension PlayPen Ltd.       20/10/2014

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

“Hope I die before I get old..?”

before I get old


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

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

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

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

 It’s bigger than pensions

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

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

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

Greedy old people

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

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

unlock wealth

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

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

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

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


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

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

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

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

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

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

Nor is there enough tied up in housing.

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

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

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

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

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

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

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

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

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

The great pension bank robbery

George collects your pension

George collects your pension


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

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

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

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

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

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

By “hypothecation” I mean

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

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

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

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

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

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

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

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

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

Any questions on the Guidance Guarantee?

guidance 1


This blog is about a conversation I had with the Pension Advisory Service. Following it I promised to feed back questions to TPAS about the Guidance Guarantee.

The blog contains questions I want asking , some background on TPAS and its CEO Michelle Cracknell and a call to action which I hope you’ll answer.

TPAS’ problem.

Michelle Cracknell’s diary looks pretty full. If she does no more than meet her speaking obligations over the next three months she will be busy, but these are the months when the jaw-jaw turns into hard law and by April of next year, the queue will be forming for guidance sessions. Michelle knows that delivery is more than public pronouncements.

I suspect that most people looking to exercise their freedoms will do so whether guidance is available or not, so a delay in delivery is tantamount to a broken promise.

With the general election scheduled for a month after the new freedoms take effect, the delivery of guidance has political as well as social importance. We need to know that this is going to work- if all our work is not to suffer collateral damage.


What is needed!

We want answers to questions – now! Many employers are preparing benefit statements which will be their final communication before April. For many employees this will be their last regular announcement. Insurers too are awaiting the details that will need to be incorporated in their wake-up packs and advisers with client in the zone need to be organising themselves in advance of GG Day.

How TPAS can help

With so many speaking engagements, Michelle has the opportunity to help. I am not sure whether she will be allowed to speak for the Treasury, but till the Treasury can speak for themselves she has become the de-facto spokesperson for the Guidance Guarantee.

She looks a little tired of telling the same people the same things. I spoke to her after her session at CA Summit and found her desperate for feedback. She’s asking what people want to know about the Guidance Guarantee.

How this blog can help

This blog can help as I know many who read this will be expecting to advise off the back of the guidance and some will even be hoping to help deliver the guidance itself. Others will be in the happy position of being able to enjoy the new freedoms.

To kick things off, here are ten questions I would like to ask – knowing that many cannot be answered till the Treasury delivers a formal announcement on delivery.

  1. What will guidance say about the risks of investing in an annuity?

  2. What will guidance say about the risks of drawing a pensions through income drawdown?

  3. Will guidance be bespoke and take into account individual circumstances (e.g. will there be a basic fact-find that governs what is said?

  4. Will guidance deliver specific mention of the opportunities to purchase extra state pension (especially for those close to state retirement age)?

  5. What will be the line on defined ambition? Will mention be made of further options that may be available from 2016?

  6. What will guidance say  about tax?

  7. Will guidance talk about the risks of living too long and of long-term care costs?

  8. Will guidance talk about property , equity release and risks about inheritance?

  9. How will advice be signposted and what directory of advisers will be used?

  10. What will be the options for “one to many” group sessions and how will they be delivered?

There are lots of other questions I’d like to know- (what is the Guidance Guarantee going to be called in future- how will the levy to pay for it work- what are the latest estimates of take-up and  will an employer (or union) prepared to pay for financial education for staff get  an incentive for doing so).

But these are second order questions. The leaked results of the L&G survey on guidance take-up are already in the public domain. The marketing and take-up of the Guaranteed Guidance is a matter of speculation, it does not- in itself impact on the offer to those people benefiting from (and vulnerable to ) the pension freedoms.

These second order questions are nice to know, the questions about what people will get in sessions are material to the management of the communication of 2015 to our clients/members/friends.


How you can help!

If you want to post your questions on this blog please do so. If you want to post them on the threads on which this blog appears, please do so, and if you want to write to me at , please do so.

I would like to build up a document of ” asked questions” which I can deliver to Michelle , which she can deliver to the Treasury;  – and I’d like to do this , this week (e.g. by the 19th of October).

So please put your fingers to keyboard and let me know as you read this blog. Unless you ask for the questions to be attributable , they will not be attributed to you.

I cannot promise that questions will be answered specifically, but I can promise they will get to the right people (and if only by Michelle) properly considered.

guidance 1

Posted in advice gap, Guidance, happiness, Retirement | Tagged , , , , , , , , , , , , , , | 2 Comments

Young People and Pensions

blackbullion logo

This is a blog by Vivi Friedgut of @blackbullion; she is also responsible for the picture and its contents!


Pensions don’t make for the most thrilling conversations. Like verrucas, funerals or the dream you had last night, talking about pensions can be a bit of a conversation killer, and most people find them a drag to think about.

When you’re in the ‘prime’ of your life, thinking about getting older and saving your money for when you do probably isn’t top of your priority list.

Plus it is hard to make pensions sexy – and it’s hard to get young people to engage.

While the Centre for the Study of Financial Innovation found that although 76% of young people agreed that pensions are important, just 30% are contributing to one. Worryingly, of those who do contribute, 42% have no idea what type of pension they are paying into.

But the pension represents a significant pot of money, a significant investment in your future so it is worth a little bit of your time.

So to the basics;

Pensions have been going through a bit of a shake-up. The government believed the previous system was getting too complicated and opaque. They decided pensions should be easier to understand and more transparent. Here are the key facts:

1. Until recently it wasn’t a requirement to pay into a pension scheme. However due to a chronic lack of retirement savings (less than 1 in 3 UK adults are contributing to a pension) the government brought in something called auto-enrolment.

2. Auto-enrolment means that every employee must contribute a minimum of 4% of their salary.

3. Auto-enrolment means that all employers are forced to offer their employees a pension scheme. Larger firms have started doing this, and all employers will be legally obliged to follow by 2018.

Remember those terrible “we’re all in” adverts? Basically you save a bit into your pension, your company saves a bit into your pension and the government contributes a bit too.

4. New rules announced in the 2014 Budget mean that once you reach 55, you can start accessing your pension pot, taking as much or as little as you like, whenever you like.

5. The Basic State Pension is unlikely to give you enough income to see you comfortably through retirement. In the current tax year, the most you’d get per week is just £113.10 (or £180.90 if you’re married).

(For more info check out this government fact sheet about changes to the pension scheme)

Young people today are transitioning into their adult lives in the aftermath of a crippling recession. High youth unemployment, lower wages, massive debt and soaring rent and mortgage prices mean that -more than any generation in the past – they need their pension savings to go further or they be doomed to face an old age of further hardship.

An investment in your future is the best investment you will ever make so, if it’s not something you’ve thought about yet, or you’ve been trying to ignore as an irrelevant nuisance, now’s the time to get educated. A five minute brush-up on the main points to consider and perhaps a quick conversation with your parents about their plans for retiring – isn’t such a bad idea and will pay dividends in the future.

Posted in advice gap, annuity, corporate governance, dc pensions, NEST, pension playpen, pensions | Tagged , , , , , , , , , , , | 1 Comment

Tiny steps towards better DC outcomes- #CASummit14

tiny steps 3

Having spent 36 hours in the company of Life Co “strategists” and their counterparts in the IFA and EBC communities, I can now try and make sense of where “heads are at”.

The mood has changed.

Two years ago, the conference was 9 months into the post RDR regime, the concern was getting paid. Twelve months on, the conversations were about auto-enrolment and the cap on workplace pension charges. This conference was about the pension freedoms, at retirement outcomes and the employee value proposition.

Andrew Warwick-Thompson of the Pensions Regulator joked that what the industry might need is a return to having three Pension Ministers a year (changes being confined to ministerial appointments).


Auto-enrolment – a bird that’s flown (for corporate advisers)

For the large advisers represented, I sensed that auto-enrolment was a bird that had flown. For the most part, the advisors at this summit have moved on and seemed disinterested in the remaining 1.2m employers who have still to stage (let alone the 200,000 new employers born every year). This was a problem for accountants, IFAs and providers not for them.

Pension Freedoms – a fresh corporate dilemma

One delegate asked why he should worry about helping smaller companies who could not afford his fees when the opportunities to advise companies on easing employees out of the workforce was so much more remunerative.

The opportunity did not appear to be to provide individual advice. Another adviser asked whether he could make money from those with “only £30- 80,000″ in their pots. The larger pots have been managed by these guys for years and the worry was that they would have a bunch of small-pot holders thrust upon them.

Corporate advisers – by definition – advise corporates. The challenges of the guidance guarantee about delivering guidance – and maybe advice to individuals. But the impact of the pension freedoms has been felt by corporates in reminding them that the outcomes of the workplace pensions they have spent years funding, are largely dependent on the decision making of their employees as they exit employment.

The point was made more than once that when employees de-couple from the mother-ship,  the success of the pass-on from work is largely dependent on getting the retirement income decisions right. So employers have “skin in the game” again. They may not be guaranteeing retirement outcomes as they did with defined benefits, but they are still implicated in the success of the process.

tiny steps 2

Solutions to the dilemma of the squeezed middle still some way off

But while advisers and providers realise that the financial fate of employees at retirement is now “their business”, nobody seemed to have found a mass market solution. The debate on collective solutions descended into an unedifying barrage of abuse hurled at CDC. Any further mentions of CDC was met with laughter , it is clearly not an idea for which this community is ready.

That said, this community was not ready for the RDR, the OFT report, the Further Measures for Savers and most of all the Pension Freedoms. The DWP and those who are fiends of CDC should not be dismayed!


Advisers still not focussing on what makes for good DC outcomes

Our group conducted with one life company a game where we had to choose from a variety of attributes of a good workplace pension to establish five things that we could agree “made for a good workplace pension”.

I had to feel a little ahead of the game as I see the decision making of hundreds of employers and know that the top six attributes they decide on are “investment solutions, durability, employee support, at retirement support, HR and payroll assistance and cost”.

Five out of the six attributes were on the table as choices- the one that wasn’t was “durability”, by which we mean, the capacity of a provider to sustain providing the five attributes over time. This is really the fourth dimension of a proposition and to me is measured by the commitment of the provider to manage the scheme in a sustainable way. Duration is ultimately measured by the quality of a scheme’s governance.

What was interesting was that the choices made by our group as to what made for a good pension were not made on the basis of good governance and best member outcomes but on what would prove most attractive for the employer at the point of purchase. These attributes included the bells and whistles of benefit platforms, apps and most crucially a low headline management charge.

The value of a workplace pension is more than what sells it!

In these two areas of discussion, I found a contradiction that I think besets the providers of workplace pensions and their key distributors.

Employers are now having to think more about the outcomes of the pensions they establish for their staff (and about those they didn’t but underpin their retiree’s “pot”).

But employers still want to differentiate their workplace pensions by their capacity to be valued by members at point of sale. Advisers see the value of workplace pensions as what they can add to the employer value proposition at the point of entry and focus on member engagement tools to the exclusion of all else.

I argued very forcibly in our session that the priority in decision making must shift.

A low AMC is not the same as “value for money”.

Nowhere is there so much need for the argument to shift as in the understanding of the simple formulation “value for money”.

Employers are taught to concentrate on the annual management charge as the measure of cost. However, we know that many costs that members meet are not in the AMC, they are met from the net asset value of the fund and cannot currently be measured because they are hidden.

So the AMC is an imperfect measure. However it is an easy measure for employers to explain to their staff and the equation of Low AMC = Good Pension is still being used by many employers and advisers as a proxy for good decision making.

Advisors (and providers) need to spend time reading the FCA consultation paper on IGCs and better understanding the role of on-going  governance in ensuring value for money.


The employer and the adviser value proposition

The AMC is valuable to an employer because it is something that an employer can influence. By selling itself to the market as a distributor of pensions, an employer can negotiate a lower AMC and advisers, as brokers, can help in this process. The typical analysis of the value of using a corporate adviser, usually comes down to the capacity of an adviser to help in bringing down charges and the employer value proposition is often measured by the extent to which this has succeeded.

Unfortunately, if the impact of squeezing charges is to reduce the quality of the five metrics that make for good member outcomes and to further reduce the fourth dimension that ensures the scheme remains high quality in these respects, all that driving the cost down achieves is lousy outcomes in every other respect.

The value proposition shifting from point of entry.

For the first time that I can remember, the corporate adviser is going to have to become accountable not just for the value of the proposition at the point of sale, but for the outcomes of the workplace pension at the end of the member’s career.

This is the endpoint of  process that started with the RDR and is now moving towards completion.

Advisers cannot be rewarded with a fat commission on day one and then be seen no more -RDR has seen to that.

Providers cannot walk away from the on-going management of a workplace pension, the OFT report, the DWP command paper and the Pension Freedoms of the budget have seen to that.

In short, the interests of employers, advisors and providers are now aligned -they are to ensure good outcomes for those in these workplace schemes over the lifetime of the scheme (perhaps extending into retirement) .  This is good and at last brings DC plans into the same space as DB plans, who knows- actuaries may start treating DC seriously !

There is still a lag in understanding the importance of the IGCs

The importance of on-going governance has yet to properly embed itself. In 36 hours in the company of advisors and providers, I did not have one conversation about the role of IGCs, how they would interact with employers and advisers and what role advisers and employers would have on improving governance through them.

When IGCs were mentioned, they were mentioned in passing as a consequence of the OFT report, not as something that was integral to the delivery of sustained quality scheme management (in respect of what we eventually agreed mattered (investment, at retirement, administration, communication and cost efficiency).

I hope that these will be the matters we will be discussing at #CAsummit15.


Next (tiny) steps.

My estimate of this conference is that the mood has changed. Advisors and providers are no longer angry and confused, they are now concerned and confused. Strategically they have not generally grasped the importance of governance and are still too wedded to selling the employee value proposition rather than managing good member outcomes.

But we are definitely getting there. We are now on the move towards better governance and lets hope we are just waiting for the lag between what providers and advisors say in public and what they say behind the closed walls of conferences such as this.


tiny steps 1


Posted in advice gap, annuity, auto-enrolment, dc pensions, pensions, Retirement | Tagged , , , , , , , , , , , , , , , , , | 2 Comments

Why we have no time for “Banker Immunity”.



We have not seen bankers marched in handcuffs from their desks but now it seems we might.

The regulators have put-out a consultation paper that seeks to pin accountability on Directors (including non-executive Directors). A good friend of mine is a non-exec of a major British Company and I very much hope she will remain one. If she feels she is presiding over a criminal enterprise she should resign and whistle blow. If she is working to put that organisation right (which I think she is) then her actions must be unimpeachable. But if she is complicit in criminality, she should face criminal prosecution.

Bankers claim that this proposed regulation is a knee-jerk reaction from jealous outsiders who haven’t made it to their party.

Bankers claim that the removal of “Bankers Immunity” might stop talented individuals coming to the party

Bankers claim that those who have spent years partying might find themselves carted off to jail because they cannot help themselves.

The British Public will have limited sympathy for the plight of senior bankers who are being faced with the options of shape up or get nicked. They are fully aware that most senior bankers have in the vaults a catalogue of misdemeanours under lock and key.

The institutional argument is that should the boxes be unlocked, the bankers arrested, the pillars on which our community is built would crumble bringing down the building.

The British Public prides itself on cleansing institutions of bad practice. We have a police force that is regularly purged of rotten apples (often for crimes of many years passing). Politicians have to live with the legacy of their decisions.

And stepping down a few rungs, do we call an amnesty on “benefit cheats” because their sins are in the past?

It is not just Bankers who have had immunity, it is Banking. The cleansing of institutions such as our police force and Westminster, has restored confidence not just in the governance of our society but in the ability of society to call our governors to account.

Bankers seem to be above the law, not just the law of the land (as imposed by the courts and devised by parliament) but the law of the populace, as administered by the media (including the social media).

That young and talented people would not joining Banking for threat of prosecution is an indictment on banking, not on the proposed change to Banking Immunity. Would you not take a job in a supermarket for fear that if you were caught stealing stock you would be prosecuted? Have our leaders stopped wanting to be MPs because their expenses are under scrutiny and misrepresentation threatens jail?

The whole case for Banking Immunity is based on the contribution of banks to the British Economy. But if the British Economy is supported by pillars such as rotten bankers, we are storing up troubles for the future.

When we discover structural problems in a motorway flyover, we close the flyover. The resulting traffic chaos is regrettable but unavoidable. It is better than losing lives if the bridge collapses.

This is the analogy I would draw with our banking system. It serves us well but it is flawed, to sort it, we may have to take a step back now before something awful happens.

The stakes are very high. The leverage still in our banks means that a banking collapse would still hurt our economy. We know how hard by looking back over the past 6 years of austerity.

As with pensions, so with bankers – we need a cultural shift in stakeholder value so that shareholders , management and employees recognise the value of the customer. Treating Customers Fairly must be more than the patina created by television adverts, it has to be at the heart of the bank’s culture.

If banks were proud of their behaviour, they would not fear the loss of Banker’s Immunity.

They would shout “bring it on”.

Banking regulation must be used to change banking culture because , left to their own devices, bankers cannot change themselves. The disruption to banks will be considerable (two Directors of HSBC have resigned at the prospect), but like the motorway flyover, remedial work is overdue and cannot be put off any longer.

Posted in Bankers, Fiduciary Management, Financial Conduct Authority | Tagged , , , , , , , , , , , , , , , , , | Leave a comment

Do you want to be a Pension PlayPen Agent?

hi res playpen

If you fancy helping your clients to get the right workplace pension to suit their payroll and provide best outcomes for their staff, you should register as an agent at .

Helping your clients to use our service doesn’t need skill and knowledge on your part, it just needs some basic skills managing data into CSV files to assess a workforce and the numeracy to explain the cash-flows from the various contribution options available for auto-enrolment.

If you’re reading this blog, we reckon you’re 99% certain to possess these!

The tough part, finding who will offer a workplace pension and working out which is best for your client’s circumstances is done by us.

We also provide an actuarial certificate to demonstrate your client has followed an approved process and a 40 page report documenting why your client chose the workplace pension they did. We even introduce you and your client to your new provider.

We promise

1. The service works (a full money-back guarantee if it doesn’t – NO QUIBBLE)

2. A fixed price of £499 (plus VAT)

3. Volume discounts for super-introducers

4. Help if you get stuck along the way.

We’re winning awards every month for what we do and we want you to share in our success. So watch me on this video and  sign up at

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To the Pitch Final we shall go – @PensionPlayPen – #thePitch14!

the pitch

Thursday October 23rd is another red letter day for Pension PlayPen.

By day we are Pitching to be Britain’s #1 start up in 2014, by night we are up for a brace of awards at the Grange Hotel competing to be Payroll’s #I auto-enrolment technology provider and technology innovator.

Proving ourselves to Payroll and Pension people comes with the territory but we’re really exited to be in with a chance of being Britain’s number one start-up!

There are 200,000 businesses born every year and to be judged one of the 30 best is mind-blowing (forgive the X-factor hyperbole). The judges are tough including the ICAEW, AVG (who protect my computer and hence this blog) and Sift Media- the Bristol based business publishers.

We’re going to have to shoot a video, I’m going to have to explain our cash-flows and income projections and somewhere along the line I’m going to have to get in front of an audience of dragons with 1/30th of a chance of winning £10,000.

Of course future, past and the current generations of start-ups are potential customers of Pension Play Pen and it’s salutary to remember that 70% of the businesses we’ll be competing with (including ourselves) won’t be in business by our staging point in 2017.

The best thing about the Pitch is that it’s there to reduce the odds of us failing and more importantly the chances of our achieving what we set out to do. Since we set up Pension PlayPen to restore public confidence in pensions, we’ve set the bar pretty high and so we’ve got to go for it- even the top 30 isn’t good enough- we need a number one smash hit!

So wish us good luck and watch out on 23rd October for tweets marked #thePitch14, you never know- you might just see @pensionplaypen top of the Pitch parade.

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In defence of genius.

Derek Benstead

Genius is not just misunderstood – it is persecuted.

Those who didn’t get Copernicus, Galileo, Wordsworth or Darwin did not ignore these genius’, they set out to do them in.

Bob Dylan when he laid out his Highway 61 album was called “Judas” by his fans and Derek Benstead seems to be coming in for the same kind of treatment for his ideas on CDC outlined last week on this blog and previously in Financial Adviser.

Derek’s enlightened views on how to build a new way to deliver pension benefits, synthesizing the best of DC and DB have come in for some harsh comments

Ok so Derek won’t be burnt at the stake and in the order of game-changers, re-discovering a system of wealth distribution that was only buried 25 years ago does not win Derek a Nobel prize, but the tweets tell a story.

The story is that in the face of rational argument, certain people turn to abuse when confronted with an alternative to their value system.

And when the argument is as clearly laid out as it was by Derek Benstead, it creates a threat that can only be countered by violence (albeit of the tweet variety).

Derek is not suggesting that either DB or DC are abolished, he is suggesting that a new way of doing things (in fact a way that worked quite well last century, is revived).

I am not a genius, Benstead is. I am his impresario, making sure he takes the stage where needed and heard by the right people. I am happy to say he is being heard by the right people.

We are not firing any insults back to those who vilify Derek and those who understand what CDC is about. That would be pointless.

But when I tweeted this morning.

this blog was what I meant(apart from mis-spelling Galileo!)

Genius’ are rarely respected, they challenge received wisdom and make people feel uncomfortable. They are heralded later, usually too late. The Origin of Species and the Lyrical Ballads were as vilified as Highway 61 Revisited at time of publication. These were some of the game changers that allowed our culture to move on.

Which is why politicians, business leaders and all those who care about restoring confidence in pensions should get behind the visionary Pension Minister we are lucky to have at the helm of our ship and state and see this CDC project safely to port.


Posted in actuaries, advice gap, CDC, David Pitt-Watson, dc pensions, pension playpen, pensions, Pensions Regulator | Tagged , , , , , , , , , , , , , , , , , | 1 Comment

CDC designed by an enlightened actuary -Derek Benstead!

hello pension


When I started out in insurance my sales manager told me: “Don’t sell a solution until you’ve understood the problem.”

So far, collective defined contribution is a solution that is so short on detail we can only suppose what it will look like and how it will work. As CDC schemes will not be opening their doors until summer 2016 at the earliest, many people consider that too late, and are asking: “What’s the point?”


However, this article will explain it is not too late for CDC to help individuals and companies. It uses three case studies to explore how CDC could be successful, and runs through some of the actuarial ideas behind the solution.

But before we look at the solutions, let us try and define the problem. The problem is neatly summed up in an email I received from an IFA friend: “Who would want to give advice to most retirees?”

Small pots are best cashed in, big pots can go to drawdown. But those in the middle are just too difficult to call. Should the investor cash in and be left with nothing? Buy a pitiful annuity? See savings eroded by the costs of drawdown?

An adviser would be lucky to avoid a mis-selling claim whatever they decided to recommend. From April 2015 advising ‘those in the middle’ will be fraught with risk, and there is no certainty of earning a fee.

Without annuities in the toolbox, and with drawdown too expensive, those with less than £100k in the DC pot have few options and less advice.

The ‘squeezed middle’ needs a non-advised product that they can understand. CDC is designed to be that product. Let us look at how it might work.

Case study 1: Gary will be 55 in 2016. He currently has £60,000 in four DC pots. He has no intention of stopping working, but he is worried that he may lose his job or have to work on a zero-hour contract with less certainty of income. For now Gary wants to roll up his savings. He knows he will need them to provide him with an income but he does not know when.

Gary wants a simple, flexible solution that will give him a decent income from his investment. He decides to transfer his pots into a CDC scheme.

Case study 2: British Ball Bearings (BBB) employs an ageing workforce – about 30 per cent of them are over 50. The company wants to downsize the workforce but cannot force old workers to retire. It needs to make retirement more attractive.

Case study 3: Marigold Underwriters Ltd fund a ‘legacy’ defined benefit plan for long-serving staff and a group personal pension for newer hires. The new staff feel they get a worse deal.

When BBB asks its staff about retirement, they want advice. So BBB approach an adviser to run seminars for the over 50s.

At the sessions the options are laid out; the cash option is discussed. Many, especially those with debts, want to cash out. Those who have large pots are encouraged to look at the flexibility of individual drawdown. Everyone is offered membership of a CDC arrangement which the company agrees to offer as an alternative to the existing workplace savings plan used for auto-enrolment.

There is common consent that all staff in future contribute to a CDC plan which offers something ‘in the middle’.

After agreeing on a CDC solution, the DB scheme closes for future accrual, and arrangements are made to transfer the GPP into the CDC plan.

Solution: Gary, BBB and Marigold need a common solution – none have enough buying power on their own. Could one collective arrangement deliver an alternative for Gary and BBB’s staff, and satisfy both the DC and DB memberships of Marigold?

All the building blocks are there: the multi-employer master trust for proper governance; suppliers to meet every administration and advice need; and a pensions regulator.

What is missing is a simple and effective funding strategy that makes sure the money never runs out and that everyone gets fair shares.

I asked one of my company’s most brilliant actuaries, Derek Benstead, for his plan for the investment and funding strategy of a collective DC scheme. His response was bold, simple and seemed intuitively right – so here it is:

1) Put the contributions in an index-tracking UK equity fund.

2) Use an actuarial valuation to set target benefits of equal value to the contributions. The assumed rate of return in the valuation does not need to be debated, it can be the dividend yield, which can be checked daily in the Financial Times.

3) The annual increases to the target benefits will follow dividend growth.


The pension outcomes will, for better or worse, reflect the economic performance of the UK. CDC pensions will neither fall behind the wealth of others in the economy’s good times, nor be an unsustainable burden in the economy’s bad times.

Pensioners continue to share in the performance of the economy after retirement. They do not have to buy an annuity, which would lock them into the low guaranteed returns of bonds.

The target benefits have been set up to relate closely to the income generated by the assets, the reverse of the well-known process of matching the assets to the liabilities. The funding and investment plan is stable and should not need extensive advice and reconsideration at each valuation.

The same actuarial valuation which sets up the target benefits for the contributions coming in can be used to calculate the transfer values for members wishing to leave the scheme. Only one actuarial valuation is needed. The target benefits of a CDC scheme should be set up without bias – that is, a best estimate plan. In the probability terms used by the Pension Schemes Bill, the target should have a 50 per cent chance of being delivered. To set a higher probability would mean setting a lower target, which would be unfair on the members while the scheme is growing.

If the scheme later shrinks, there may be a windfall to the members at the time. Whatever benefit probability targets are set in regulations, CDC scheme trustees should nevertheless have a best estimate plan.

A CDC scheme can deliver an income for life based on the performance of the economy. Running a CDC scheme should be easy. This may sound like ‘fantasy pensions’, such a simple model sounds pie in the sky. But most good ideas are simple, like the changes in the Budget – and the Budget cries out for fresh thinking.

We now have a draft Pension Schemes Bill which can allow a scheme based on these principles to work. George, BBB Marigold and many others like them have the possibility of collective benefits that will help restore confidence in pensions.


This article first appeared in FT adviser

Posted in actuaries, advice gap, auto-enrolment, dc pensions, pensions | Tagged , , , , , , , | Leave a comment

Don’t get fooled by the phoney pension giveaway


The phoney give-away

The most accurate measure for the success of private pensions in the UK is the replacement ratio; a measure of what percentage of people’s pre-retirement income is replaced by savings specifically for retirement.

Steve Webb and the DWP are beginning to chart the nation’s progress from historically low levels of replacement (following the near collapse of the private sector defined benefit pension scheme) to something like adequacy.

Even by the most optimistic forecasts, any recovery will take a minimum of 20 years and though the new system of auto-enrolment for all and a return to a proper basic state pensions is likely to mean a fairer pension system overall, currently there is a huge gulf between the pension haves and pension have nots.

For the vast majority of middle Britain, there simply is insufficient in private pensions for George Osborne’s vision of inheritable pension wealth to mean anything. There is more capital tied up in most people’s garage than their pension.

Organising people’s decision making from 2015 onwards around the inheritable value of the pension pot may be realistic for the top 5% of DC savers for whom the annual allowance that can be paid into pensions (£45k) and the Lifetime Allowance that can be built up £1.25m) are meaningful figures. But most people struggle with the auto-enrolment proxy of 4% of salary and the average pot is £30,ooo, about 1/40th of the maximum allowance.

So George is kidding us and for those in the pensions industry trying to get some sense into people’s financial planning, it is deeply unhelpful for the Chancellor to be parading tax hand-outs  for the super-rich as incentives for the pension poor.

We are not pension affluent, as a nation we are pension poor and we need to look at other ways to solve the problem than kidding people otherwise.

Corroding the good work of the past five years

There is another way of approaching the pension problem. It is not as sexy and it may not be as politically attractive, but it is the responsible way.

The underlying problem facing the nation is that we are living longer, we are not getting wealthier in retirement, we are getting poorer, having to work longer , facing the uncertainty of long-term care and the ignominy of decrepitude without the means to be self-reliant.

Those who die in the first few years of retirement (and 75 is still pension young) may give their kin a fillip (estimated at an average extra legacy of £500) but they will be few in numbers, only a few die young.

To qualify for this extra legacy , you must be planning to die young and risk living long. For you will have to keep your money invested in your own pot. It looks unlikely that you will get any benefit from the Chancellor’s generosity from any form of collective pension-(annuities, defined benefit or collective DC).

That is because all three of these means of receiving a pension are based on a mutual pool which works by people collaborating and putting aside their obsession to beggar their neighbour.

An unfair policy which will only benefit the  “pension super-rich”

This might seem obvious and it would be were we not so dead set on aspirational wealth. The idea of individual self-reliance is conceptually attractive, it plays well at conferences, with the media and at the hustings.

But there is a dirty underbelly  to the “I’m alright Jack” world of George and his right wing associates. For them it’s every man for himself and bugger the consequences. The consequences are seldom felt by those in power, they are inherited by those who have no power.

At a time when Defined Benefit pooling is on its knees, annuities “a dirty word” and the new-pooling of CDC still in gestation, the Chancellor’s craven use of populist pension policies to see off UKIP and secure political brownie points with aspirant Britain is nauseous.

The obvious solution

There is a very simple way of taxing with the transfer of wealth from generation to generation, it is inheritance tax. Inheritance tax, were it to be applied to pensions would only impact the genuinely wealthy. It would not give an exemption to those super-rich under 75 , it would tax them on their pension wealth, it would give the same exemption to those with total wealth below the IHT threshold (currently £325,000 for singles – £650k for couples)

By using inheritance tax to determine who paid tax when people die too soon, we would have a system that was fair across DB , DC and DA, the residual values of “pooled” pensions are of course zero, this means people inherit nothing but get no tax-bill. The residual value from individual drawdown will be easily valued and will only be taxed where the overall value of the estate is sufficient to leave a meaningful legacy to the next generation anyway.

So what does this mean?

George Osborne is, by exempting DC in drawdown for those dying under 75

  1. building in unnecessary complexity into a tax-system which is fit for purpose as it stands(IHT)
  2. creating an unhelpful bias in the guidance system towards individual drawdown and away from pooled solutions
  3. kidding the population that it is pension wealthy (when it is not).

Some good people have praised the Chancellor for his giveaway, people that include Ros Altmann and Malcolm Mclean, but I think they too have been fooled by George’s blandishments. The £150m pa giveaway will be focussed on a small band of high-net-worth individuals using drawdown who have the misfortune to die before they are 75, for the rest of the population , the £150m will pass them by.

Don’t get fooled by this tax-break, it is almost certainly not going to break in your direction. Let’s get on with the business of restoring confidence in pensions through better savings, better products and better education and not be diverted by political shenanigans from a Chancellor who should know better.

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Annuities get another kick in the goolies


What’s the story?

The Chancellor will announce in his speech at the Tory conference that he will put a stop to the 55% tax on pension pots not spent at death.

The Treasury announcement on what detail we so far have is here.

If you die before 75 your nominated beneficiary gets your pot tax free

If you die after 75 your beneficiary pays tax on your pot either at his or her marginal rate (if its paid in instalments) or at 45% if they take it as a lump sum. The intention is to move to rationalise this by 2017 into a single system based on marginal rates.

What’s the point of the changes?

The point of the 55% tax was to stop pensions being used as a tax-shelter for the uber-rich who don’t need any more income in retirement and to encourage people to insure against old age by purchasing longevity protection (aka a pension annuity),

But like annuities themselves, the Chancellor no longer sees the point.

With staggering percipience, the BBC report that Osborne will  say

“People who have worked and saved all their lives will be able to pass on their hard-earned pensions to their families tax free.

“The children and grandchildren and others who benefit will get the same tax treatment on this income as on any other, but only when they choose to draw it down.

“Freedom for people’s pensions. A pension tax abolished. Passing on your pension tax free.

“Not a promise for the next Conservative government – but put in place by Conservatives in Government now.”

The small print will emerge in the Autumn Budget. A price tag of £150m a year will attach to this giveaway, to be shared by around 320,000 inheritors a year (a tax saving on average of £500 per pension pot).

There’ll be immediate pay-back if it leads to Conference talking about popular budget reforms and not defections to UKIP.

It will certainly go down well in the City who will see this as another boost to the “wealth” industry and a kick in the goolies to those advising on pensions – whether annuities, defined benefit or defined ambition. It will do nothing for the sale of Lamborghinis.

What sceptics will be asking

It seems to me a policy that begs further questions;

1. Is this really a hand-out (as it seems at first sight) to the filthy rich?

2. Is this part of a wider move towards self-funding of long-term care?

3. Is this just a gimmick that masks the horrible inadequacy of pension savings and the probability that most people not buying an annuity will outlive their savings?

4. Will death benefits become another reason to want to “liberate” DB  (and in future DA) plan benefits?

No doubt these will be the questions Rachael Reeves and Gregg McClymont will be asking from the Labour benches.

What this will mean in practice

For me, this tax-change is headline grabbing but not substantial. The Chancellor is taking a bet on feckless behavior by the British pensioner at retirement, the savings to the tax-payer are dwarfed by the tax-take on pension busting by those “taking it all at once”.

So the chancellor is already relying on people behaving in their worst financial consequences, this measure panders to the shallow optimism of those parts of the financial community who see pensions as wealth rather than insurance. It is irresponsible

The tax-change could lead to bad social consequences, especially between those in a family who would benefit from annuity purchase (the people who own the pension pot) and those who won’t (those inheriting the pot).

If you of an age, ask yourself how you would explain to your kids that you’d just signed away their pension by buying an annuity.

If you are young, ask yourself how you’d react to hearing of plans by your parents to swap your pension inheritance for an income stream that ended when they did.

Such questions do not feature in the wealth manager’s list of considerations, (for it is the wealth managers not those insuring against poverty who will applaud the Chancellor).

The real winners

It will be the readers of the Mail, not those of the Sun (or those that cannot read) who will be cheering this giveaway. But the real winners will be those with massive Self Invest Personal Pensions for whom DC pension plans are primarily a tax-planning wheeze.

I worry that this is how UKIP impacts policy, let us hope that the “I’m alright Jack” self-sufficiency of middle England is not just a chimera. Middle England is not alright when it comes to retirement income and to suggest that pensions wealth is likely to cascade down the generations is to hide the reality.

The wrong message

Most of middle England is debt rich, housing rich and income poor and this policy does nothing to help people plan for old age; it is a kick in the goolies for “pensions” and a kick in the nuts to those trying to deliver financial education responsibly to those in, at or approaching retirement.

So for all the applause it will receive at the Conservative Party Conference, this giveaway leaves me with a pain in my lower stomach.

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Ros Altmann on why the over 60’s are missing out on “free pension money”


Ros Atmann recently told me she wished she could blog like me, having read this blog, I wish I could write like her!

Huge numbers of over 60s are opting out of pensions auto-enrolment, losing their employer contribution

Budget pension reforms make pensions a no-brainer for most older workers as they can simply take the cash if they want to

Need for financial education and advice greater than ever


Figures just released show that nearly all younger workers are remaining in their employer pension scheme‎ after being auto-enrolled, but many older people are opting to leave.

According to NEST (the National Employment Savings Trust) 28% of over 60s are opting out of auto-enrolment, while only 5% of under 30s are turning away from pension saving.

As this week marks the second anniversary of the start of auto-enrolment, it is certainly encouraging that so many are staying in, however it is worrying that the older workers, who will benefit soonest from their pension savings, are not taking advantage of the free money from their employer.

So why are so many older workers deciding to opt out?  I can suggest some possible reasons:

  1. Fear it’s too late to put money into pensions: Many older workers may not have any pension savings at all and may feel they have left it too late.  Perhaps they have always heard that it is best to start saving early, so they feel they cannot benefit, while younger workers still have many years of saving ahead of them.  However, it’s never too late to save and auto enrolment is a very attractive proposition for most people.  Indeed, especially for those who do not yet have much pension saving, staying in auto-enrolment should be beneficial.
  2. Don’t realise that auto-enrolment means ‘free’ money:  Under the terms of auto-enrolment, every £1 that workers contribute to their pension immediately doubles to £2 (less charges) – with the extra £1 coming from their employer and the Inland Revenue tax relief.  There is no other savings product which doubles your money on day one.  Those who opt out are rejecting ‘free’ money.
  3. Don’t realise the Budget reforms mean they don’t have to buy an annuity and can spend the money freely:  Perhaps the over 60s don’t realise that the Budget changes mean they can double their money and then should be able to take the cash out and spend it after April 2015.  As they will no longer have to buy an annuity, or drawdown, they will usually be better off if they stay in
  4. Fear of means-testing penalties:  Some older people may be concerned that having money in a pension will affect their ability to claim means-tested benefits.  Certainly, before the pension freedoms announced in the Budget, this could have been an issue, but under the new regime anyone affected should be able to take their money out and spend it, and they will also have the employer contribution to spend as well, which would otherwise be lost to them, so they are better off staying in.
  5. Already have good pensions:  Perhaps many of the over 60s think they already have good pensions in place, so they don’t need any more.  However, even if they have other pensions (unless they have reached or are close to the £1.25million lifetime limit), they would normally be best advised to stay in as they are turning away free money by opting out.
  6. Distrust pensions: Perhaps the older workers distrust pensions so much, after hearing about or experiencing some of the scandals in recent years and this has put them off pensions altogether.  Younger workers may be less directly affected by these.  It is also the case that new-style pensions are much better value than many older pensions.
  7. Can’t afford pension contributions:  Some older people may feel they need every last penny of their salary and cannot afford pension contributions, however, it is difficult to imagine that so many more older people are struggling than the under 30s, where opt out rates are so much lower.  Therefore, this is unlikely to explain the large age differential in opt out rates.
  8. Don’t believe the reforms will last:  Maybe the older workers are more cynical than the young and don’t trust the Government to leave the pension reforms in place, fearing that the freedoms will not last.  They may be afraid of being unable to take the money out, or being forced to buy particular products again in future, having seen so many pensions policy changes in the past.

So, if they don’t trust pensions, or don’t trust Government policymakers, this could explain the high opt out rates.  It will, therefore, be important for Government and employers to help their older workers understand the benefits of pension saving and the risks of opting out of auto-enrolment if they want  to reach those coming up to retirement soonest.  Improving financial education would clearly help too.  Of course, anyone who is unsure about their position would benefit from taking independent financial advice, but for most older workers, the employer contribution coupled with the Budget pension reforms make pension savings a ‘no-brainer’.

Assuming nothing else changes!

Posted in accountants, annuity, auto-enrolment, Flump, pension playpen, pensions, Pensions Regulator | Tagged , , , | 6 Comments

“My pension offer” – explaining CDC to a confused public!

John Ralfe

Confused or confusing?

John Ralfe has been expressing his frustration that none of the CDC champions have made him a two page offer to tell him what a CDC pension offer might look like.

I’ve not done this yet, partly because I’ve been thinking about it and partly because I’ve wanted to hear from others more expert than me on what I might be able to say.

But I think it’s right to hold yourself a hostage to fortune and rise to this challenge, so this is what I’d want to read before I invested my DC pension savings in a DC Scheme.

Mr Plowman

Thanks for your enquiry.

I am the proposition manager for this CDC pension and this is my proposition to you. It is the same proposition I make to all prospective members as this pension plan does not pay inducements to some and charge commissions to others.

My offer to you at your age (60) is to pay you a pension of £1,000 for every £20,000 you invest in my plan. For every £1,000 you give me , I will offer you a pension of £50 a year for the rest of your life.

It is my intention to increase the pension I pay you every year in line with inflation (as measure by the consumer price index.

These pensions assume you do not want a pension to continue to your partner, spouse of any other dependent, I can give you an offer for these options and this will depend on their ages.

I want to make it absolutely clear that I am not guaranteeing you these amounts in year to come. It is likely that at some stage I will have to reduce  your pension. Based on our financial modelling, I would have to have done this three times in the last 100 years; at the time of the Great Depression in 1931, during the Second World War and during the Suez Crisis in 1956. The nearest we’d have come to cutting benefits since then would have been the Banking Crisis of 2008. You may have heard that in Holland some similar funds actually did cut benefits by up to 7%.

My estimate of the amount I can pay you is based on educated guesses about how things will be in the future. I have much more confidence that these guesses will be right over the long-term than the short term. I have very little confidence that I will be right year are after year. In fact I  predict that I will be too optimistic 50% of the time and too pessimistic 50% of the time.

The good thing is that I can afford to be wrong within certain tolerances. It is only when I am out by a wide margin that I will have to reduce benefits. I estimate that on average this will happen once every 40 years.

The rate I am offering you is around a third more than you can currently get from a comparable annuity. You may think that this is a little over-optimistic but there are sound financial reasons for this rate being higher.

Firstly the cost of guaranteeing you benefits is very high and probably accounts for half of the extra pension I am offering you. The reason guarantees cost so much is that not only do those offering them have to set money aside (reserving) but the investment strategy to back up the guarantee will not offer the same long-term returns as I can hope for.

Secondly, I am able to treat you as one of thousands of people in my plan and your money is pooled with the money of thousands of others. The economies of scale I get from you all means I have lower costs and can pass these on to you through a better rate.

What is more, I do not have to worry about you living too long as an insurer offering an individual annuity has to. Your life expectancy is part of a big pool of life expectancies I have to manage and I am able to allow you to insure each other. This pooling is very efficient, again I do not have to set aside money for you as you are insuring each other!

So there is nothing “magical” about the better rate that I offer, it is achieved by treating you as one of a large crowd and it comes because I am guaranteeing you nothing.

Having read this, you may be reconsidering investing in my plan. If you really value the guarantee or want the freedom to invest as you like, you should look at other options.

There are one or two other things I’d like you to know about my offer.

Firstly, I promise to treat you fairly if you decide you want to leave my plan. You can take your money from me and reinvest in an annuity, invest in a drawdown plan or go and buy your Lamborghini. I won’t try to stop you by placing transfer penalties and you’ll get a fair share of the fund based on your initial investment and how the fund is faring. If the fund is faring worse than I’d hoped , you might find that the fair value is depressed and if it’s doing better , it may be slightly better than you’d expect.

Your expectations should be based on using the calculators I will provide you with which will show you what I think the normal transfer value will be. Your transfer will only be lower or higher than the normal transfer funds in extreme circumstances.

Finally I would like to say a little about how we pay you your pension. There are two ways in which you can receive your payments “taxed” and “part taxed”. The taxed version assumes you have taken your entitlement to a “tax-free lump sum” and I will tax your pension under PAYE as earned income at your highest marginal rate. The “part-taxed” version assumes you haven’t taken your tax-free cash and I will pay you a quarter of your monthly payments “gross” of any tax with the rest fully taxed.

The choice you take should be based on whether you need your cash early or are prepared to wait, waiting will be more rewarding as you will have part of your money invested tax-free for longer.

The decision you take shouldn’t be taken lightly. We would like the opportunity to talk further with you about our plan and you can call us to discuss how it works, mail us or look at our proposition in more detail.

I hope you have found this explanation helpful and that you feel it properly explains why I run the pension the way I do. Thanks for your attention and engagement.

Yours sincerely

A Friend of CDC

This article first appeared in

Posted in advice gap, auto-enrolment, CDC, pensions, with-profits, workplace pensions | Tagged , , , , , , , , , , , , , , , , , , , , | Leave a comment

The value of regular savings

man from pru 2


60 years ago, a revolution happened in the savings industry- it was the “standing order”. The standing order became the “variable direct debit” and people were able to establish regular savings plans which worked like magic, taking money from your bank account without troubling you at all.

My mother used to buy me savings stamps from the post office which I stuck in my savings books and a man from an insurance company used to call at our house and take money from my Dad. I remember these things from childhood.

But when I was 17 I got an evening job and started saving with Sun Life of Canada £10 per month into a maximum investment plan, this was by direct debit and the policy matured ten years later and paid off my first big self-employed tax bill.

A man , not much older than me, came to our house and he spelt it out to me over the dining room table. I remember that meeting so well. He set up a standing order for me, it was from the bank account my mother had made me set up when I started bringing home cash from working with John Heanon, felling trees.

I have always considered the direct debit or standing order as the most valuable part of a savings plan and I now consider the capacity of payroll to make deductions on my behalf into ISAs, pensions and even credit union savings accounts, as pretty wondrous.

What you don’t see , you don’t miss and it’s been part of my financial DNA to save 10% of my salary since the man from Sun Life of Canada suggested I did so in 1977.

As I’ve got older, I’ve discovered the value of saving into equity funds. The value of some of my savings (those that weren’t blighted by high charges) are now- 20-30 years on , out of all proportion to what I paid in. Even taking into account inflation, I have done really well by saving into share-based plans.

Part of this was because of great months when I bought when shares were depressed, thank goodness I did not panic and stop saving in 1987 (a few of my clients did).  Again, I heeded the things I was told about pounds cost averaging and kept my nerve.

All this doesn’t make me Warren Buffet, but it proves to me that the simple lessons that I was taught when in my earliest years and through my teens were worth listening to.

When I sold savings plans, I told people that saving between 5 and 10% of their earnings into a plan would build them a vast capital reservoir by the time they got to their fifties. Relative to some people, I don’t have vast capital, but I have capital to meet emergency needs and the means to pay myself a proper income when I wind down from work.

I worry that the simple messages I was given are obscured today by over-elaboration. I hear talk of financial education including detail about swaps and options, of people being taught about the properties of different types of bonds – of understanding the meaning of a yield curve.

Other people fret about debt, especially student debt- I saved to pay off my debt (to the taxman) and I suspect that good savers do not get into so much debt- they know the value of financial security.

Other give you sage tax advice, suggesting that tax is the primary driver for saving and that you should time your saving to mitigate tax.

Nothing- to my mind- replaces the importance of regular saving, and saving meaningful amounts- at least 5% and better 10% of gross income. If you do this, you won’t go far wrong.

man from pru

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What’s that coming over the hill…? NAPF CDC DEBATE #Fail

whats that coming over the hill


The NAPF CDC Debate

The debate on how we organise our retirement incomes from our pension savings was not progressed at the NAPF’s CDC focussed pension connections meeting last night.

A half filled room witnessing a debate between two “Pale Male and Stales” was never going to set hearts beating and predictably we got a peremptory dismissal of CDC as “magic beans” from one participant and a limp eulogy for a vision of pensions that faded in the nineties, from  the other.

That I can’t report names is because there was, apparently, a no-tweeting, Chatham House policy in place. For the sake of the participants this is just as well. The world outside the NAPF’s offices would have fallen asleep had they been forced to sit through that drivel.


What’s that coming over the hill?

To address the question in hand …

CDC has a natural place among the pension options available to those with DC pots and past 55.

If set up as a Regulatory Own Fund (Rof) like the PPF , a CDC scheme will be able to take your various DC  pots as transfers and offer you a lifetime income stream in return.

Pound for Pound, the offer will be higher than annuities (though it will not be guaranteed).

Unlike using an individual drawdown policy, a transfer into CDC will not require you to do anything to monitor and manager your income, you will not be required to take investment decisions, you will hand over the reins to fiduciaries who will do that for you.

Wrong monster – John

“Fiduciary” is a latin word meaning “those who we trust”. CDC relies on us trusting others to do what they say. The chief tactic of those who attack CDC is to deny that we have any trust left. And yet millions of working people trust fiduciaries to pay them pension benefits. Were trust to be taken away we could label all defined benefits schemes including the state pension and the unfunded and funded taxpayer sponsored Government schemes no more than Ponzis.

The reality is that we all trust experts to pay us pension benefits, even the experts trust other experts because no pension expert can be expert in everything. Pensions are about future promises many years hence- without trust there can be no pensions and without pensions , we have no financial security.

CDC is the trusted means by which those who want a decent retirement stream from a trusted source will spend their retirement savings.

Wrong hill – Hamish

CDC is not going to work as a mainstream alternative to DC accumulation. Not because it cannot do so, it can. But we have a fit-for-purpose means of building up capital prior to spending it which is working very well. Ripping out your kitchen a couple of years after installing it isn’t the answer and ripping out workplace pension schemes no sooner than you’ve converted them for auto-enrolment isn’t the answer either.

There may be a purpose for CDC as an accumulator later (think New Brunswick) but that’s not on today’s agenda.

Where employers are concerned is at retirement. They have worked out that we have gone from an at retirement regime where we gave no choice (annuities) to one where we give people freedom to choose options many of us have no wish or ability to buy. I don’t want to swap retirement security for a Lamborghini and I don’t want to spend hours worrying about the investment of my saving and how I cope with living too long.

There are many people who will want to self-manage their savings but I’m not one of them and I suspect that in their heart of hearts, most people, were a fiduciary solution available, would choose it.


Another chance goes a begging

What is so frustrating about debates like last night’s is that they force people who are interested to listen to people who aren’t interesting. The PMS brigade must move on and allow some fresh thinking.

Employers, Trustees, Master-Trustees, IGC,TPAS, MAS and any other agencies sign-posting people at retirement need a safe-harbour option for the people who don’t want to do it themselves , who aren’t reckless but ordinary decent folk wanting a long-term income stream in retirement.

The vast majority of DC pots and the majority of DC capital is not in your employer’s scheme, it is in schemes from past employers or in your personal pension you set up yourself. What use is your current employer to you with regards to this money?

The NAPF and those who speak for it continue to couch the debate in terms of  the employee/employer relationship but in truth it’s not. At retirement you are on your own, standing looking up the road to see what’s coming over the hill.

Let’s make sure it’s the right kind of a monster on the right kind of hill.


This blog first appeared on  .. a bit male- not pale or stale!


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Auto-enrolment; – tPR’s despatches from the trenches


Auto-enrolment is like Flanders in 1914.  Those wishing to see universal adoption of workplace pensions within Britain’s employment structure are digging in for an onslaught that has barely begun.

Our Ypres’ and Passchendaeles’ are yet to come. We are still in the phoney war.

staging profile

The latest update from the Pension Regulator on the progress of the grand plan to enrol 11m of us into workplace pensions makes interesting reading both for what it tells us, and what it cannot tell us.

what's happened so far

What it cannot tell us, but we need to know, is how many of the April 2014 stagers have now declared their compliance. Unofficially, we believe the number is 93.6% but this has not been officially release. TPR are sanguine as they know a large proportion of the missing numbers relate to employers with multiple payrolls, who may have declared overall compliance and not itemised compliance per payroll. They also think that some employers enrolled employees into Local Government Schemes and have not been verified by providers.

It is to the Regulator’s great credit that it is facing the challenges of information candidly and sharing its numbers as best it can. There may be shortcomings in its intelligence but they are minor.

I am encouraged by the Regulator’s willingness to involve itself in the nitty-gritty of data transfer and help the market to get through the capacity crunch signalled by the alarming purple lines that dominate the staging horizon from the end of next year.

The Regulatory framework that governs workplace pensions is in a mess.

I am not  happy with the Regulatory position on the pensions into which these 1.3m employers and 11m employees will be invested.

While we may remain compliant in terms of the administrative process, are the pensions into which we are investing improving?

The answer is that we do not know and in terms of  Regulation, advisory capacity and employer empowerment, we seem to have hardly dug in at all.

For example, we do not know  how many of the workplace pension schemes established to date are compliant against the minimum standards to be implemented in 2015.

More alarmingly, we don’t seem to have a regulatory framework in place that can give tell us what compliance (let alone best practice) looks like.

There is here a Regulator problem (more than just a regulatory problem). The voluntary framework that governs occupational master trusts (which are increasingly becoming the preponderant workplace pension) appears to be changing. Here is the vision as outlined by tPR earlier in the year


Here is the triangle as it was presented to Friends of Auto Enrolment on Thursday of last week.

TPR framework

Anyone trying to make sense of the Pension Regulator’s position with reference to these diagrams is in for some difficult hours of study! I have to put my hands up and admit defeat!

It’s not all bad..

On a positive note, it is good to see the idea of member outcomes being re-introduced at the top of the mix and its good to see the Pension Regulator reminding us what makes for good DC outcomes

Good member outcomes

But the rest is hapless

Behind these six elements are the woolly “principles” and behind them the 31 characteristics by which no adviser can educate nor any employer choose or review a scheme.

The ICAEW’s MAF document has much that is good about it, but it has not been designed to integrate with the workplace pension system going forward. It is not joined up to the DWP’s minimum standards (see below)  and is inconsistent with the IGC proposals. It is a bit of a white elephant.

So where is all this leading?

It seems that voluntary compliance against this uber-complicated governance structure has become an end in itself. If I’m right, then  the MAF will become no more than an upgraded version of  PQM , at best a  pensions equivalent of IS 9001,

This statement that appeared in the Regulator’ slide-deck suggests that two years and 4.4m people into auto-enrolment, we are only at base camp and that many of the mountaineers are climbing another mountain!


Good for Peoples Pension, but what does this say to the person in a Standard Life GPP?

This framework is too late, too complicated and totally fails to help those of us trying to advise, to do our job. How can we engage, educate and empower in such an environment

This  a voluntary code looks set to become a marketing badge rather than the DNA by which a pension scheme is run.

By contrast, the FCA’s IGC proposals , which adopt “value for money” as the central theme, are understandable, meaningful and mandatory.

I cannot see how a voluntary code for master trusts and a compulsory code for contract based plans sits within an overall framework based on the Pensions Acts and the DWP’s Minimum Standards. In a world where every company has, by law to have a workplace pension plan, such widely differing governance systems for GPPs and master trusts only serves to confuse.

Is this MAF any practical help today or from April 2015 ?

From April 2015 we are being asked to  apply the DWP’s minimum standards with reference to the master trust assurance framework and I cannot see how we can. Two out of the three leading master trusts have charging structures that are openly non-compliant with the 0.75% charge cap (NEST and NOW), others such as Friendly Pensions have followed suit.

The skill and knowledge needed to properly understand the costs that members meet from the Net Asset Value of their fund isn’t addressed by the ICAEW’s MAF, indeed any reading of the MAF and the IGC consultation would not suggest that their two authors had ever met.

In conclusion…!

All of which supports my earlier call for us to merge at least the DC divisions of these two Regulators.

So much for Regulation on workplace pensions -what about advice?

Coming back to the state of auto-enrolment, which of course is a different issue than the state of workplace pensions, the Pension Regulator’s enforcement team have some interesting research on who smaller employers are going to turn to for help on the staging of their workplace pensions.

Who will employers turn to

The obvious conclusion is that accountants are increasingly going to hold the keys to auto-enrolment. The 74% of micros who claim accountants as their gurus are almost all going to be looking for a one stop shop for both auto-enrolment and payroll services. Infact the 78% figure is simply a reflection that most micros outsource payroll and HR to a business services manager who effectively runs the back office. So how ready are the accountants?

Accountants 2

Most accountants are intending to offer the administrative services, but when we look more closely at the services offered or planned to be offered by accountants we discover that they are mechanistic and relate to the integration of HR and Payroll systems and compliance with regulations.

Accountant intentions-tpr1

When it comes to the more pension related activities which touch on member outcomes 60% of accountants have no intention of getting involved.

All of which leads me to believe that the problems we will have with auto-enrolment are only being partially addressed.

With the regulation of workplace pensions being split between two regulators with radically different governance frameworks, with IFAs showing little appetite to involve themselves in the business of choosing or reviewing a pension, who will be “expert”?


So who is going to advise?

The Regulator would like advice on pensions to only be given by those with skill and knowledge (though no definition of what makes for a skilled or knowledgeable person has been put forward).

We know that this advice – so long as it is confined to business to business conversations is unregulated

workplace advice

In theory anyone can advise, but without any clear direction from the Regulator , no reward from the workplace pension providers and no incentive on employers to take advice, it is no wonder that the advisory market for SMEs and Micros looks as shrivelled as a salted snail.

And are we any closer to empowering our employers?

With such confusing information on what makes for a good pension and such vagueness as to who should be offering advice, it is likely that the OFT’s observation that


will continue to apply.

Until we can find a way to get Regulators to engage, advisers to educate and small employers empowered to make good decisions on behalf of their staff, the “buyer side of the DC workplace pensions market will remain auto-enrolment’s weakest link.

Despite these headwinds, we at remain confidant that a way forward will be found, we just wish we didn’t make life so difficult for ourselves.

Mind you, by comparison to the strife of our forefathers, we can count ourselves very lucky. I am confidant that by 2018 , as we did by 1918, we will win this (not so bloody) war!

Our trenches are imaginary, our struggles mental and the stakes we play with a whole lot lower, so we remain playful!


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Telling it like it is – a Jamaican perspective on annuities



Following on from a recent article on annuities, I’ve got some interesting feedback, including a remarkable post on the Pension Play Pen linked-In group from Magdalena Cooper de Neuze who is an insurance broker in Jamaica

I hope that those who are thinking about the Guidance Guarantee, either as Trustees of DC Plans or as potential members of IGCs or within Government , can spare a few minutes to read the comment which explains in simple terms how people can understand annuities.


I disagree that annuities are not understood by most people.

What has been difficult for professionals is that they do not make the immediate link in their presentation between saving for retirement and the income which is paid through an annuity. What we have done consistently is to replace the word annuity with ‘pension’.

We have done this for so long that we do not know the word ‘annuity’ and how to use it in our professional discourse with our prospects and clients. We need to start saying that its the annuity which provides the pension i.e. guaranteed lifetime income.

In fact yesterday I had to do some explaining to a gentleman who had no knowledge about annuities and by the time I had completed my discussion with him he knew the word annuity and what it meant. I guess that if I am asked to give his name and contact number someone can call him to test what I have stated!

I am a firm believer that professionals must use their terms and explain to the non-professionals. But professionals cannot be using the same terms as the public! Yes, the word annuity may be difficult for some people to pronounce BUT when they realize that it provides a guaranteed lifetime indexed income they start to pronounce it very quickly and correctly.

As professionals we need to take responsibility when situations like this arise and work together on how to resolve it i.e. how to explain it better to the public. Mr. Tapper you posed a great question and comment.

I am also of the opinion that the explanation of the various annuity options which are available at retirement (disability, old age and death) are not well explained by professionals to clients.

I do believe that the selecting of an annuity option is a very important event in one’s life and really needs a specialist to assist the client to make an informed decision.

It is not a quick and ready selection without certain facts of the client being discussed. I have developed my own approach and questions which I ask before the client signs off on their selection.

I take about an hour with a client who is making this decision. If its a wind-up of a Superannuation Fund I make group presentations and allow for many questions so that the Plan Members can understand what annuities are all about when a fund is being wound up.

There are times when I ask Plan members to invite their spouse or adult child. I recall one presentation and an employee remarked ‘why didn’t the initial person who sold them the Superannuation Fund advise them of the end result i.e. annuities’.

So I think we have a lot of work to do to communicate what we do in offering retirement savings plans to the public. Our most important work today is to find ways to communicate annuities effectively and to demonstrate how others have been benefitted with not only their own income needs but also how an annuity provides for generational wealth through guaranteed income.


If anyone would like me to share Magdelena’s profile with them, please contact me at

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I’ve just been (pension) geeked!

hello pension

Yesterday, as you probably weren’t aware, was national pension awareness day. I tried to tell you  in my Pension Play Pen weekly announcement but did you engage? I thought not

September 15th was decreed so by the Pension Geeks among whom is pension evangelist Ralph Turner (former Grumpy Old Pensions Man) and a fellow called Jonathan Bland – who I hadn’t met before last night.

Last night I was pension geeked. My laptop proclaims that “Henry Tapper is a Pension Geek”, I have new even geekier glasses, my flat is full of pension geeks balloons and my rucksack is full of geek wristbands. This one modelled by friendly actuary Peter Shellswell (no – not the ape).

Which one's Peter? (hint- dodgy fangs)

Which one’s Peter?
(hint- dodgy fangs)

This full onslaught on what remained of my credibility occurred when I was most vulnerable. An eight hour strategy meeting with First Actuarial, replete with a wonderful hour long discussion of GMP equalisation had softened me up , so I little resistance in me when I arrived at Jamie’s wine bar, Bow Lane.

But Jonathan Bland (chief Geek) would have got the better of me, even had I been on form. The lad’s tale- that he converted to Pensionanity while lying on the beach with his missus this time last year, was the theme of the evening. Like Saul on the road to Damascus , he was struck down by the awesomeness of spending money on his future!

This Damascene moment turned him from a Disney-trained animator into the Geek he is today.

Chatting with Melancholic Mike of Peoples Pension, it became clear that Jonathan is a bit of a whizz at animations.

An inspection of revealed a cornucopia of pension goodies on which I could feast my eyes and wiggle my fingers.

I had no need to be made aware of pensions, but I was needed waking up to this stuff!


Mike reminded me mournfully, that if I didn’t watch my laurels, could go the way of (still a great site) which he runs. Pension Geeks could overtake me and render me obsolete.

Mike reckons without my inate capacity to collaborate. If you can’t beat ‘em, join ‘em!

So my next move is to send Jonathan Bland and all who geek with him, social media greetings and extend the warm hand of friendship across my entire bandwidth!


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Making sense of the Budget’s Pension Changes


Everyone knows that the changes in the taxation of pensions announced in the budget and now working their way into law – are going to make a big difference. But just how will they affect you and what can you do to make sure you are a beneficiary of change and not a victim?

From April 2015, anyone over the age of 55 will be able to choose to take their pension savings as a lump sum and not as income. So you could take all the money you’ve saved and pay off your mortgage, have a huge bank balance or even invest in a Lamborghini. According to numbers released by the Treasury, this is exactly what the Government expect many people to do. Which is why the Government expects to make money out of these changes. Because taking your money all at once will come with a big tax bill. You’ll still get your cash, but some or all of it may be docked anything between 20% and 45%- depending on your “marginal” rate of tax.

One way of making sense of the budget’s pension changes is to think of it as an elephant trap into which a lot of us will fall, because we are so eager to get our hands on our savings, that we miss the tax consequences and like the Elephant in the hole, find ourselves unable to get out of the mess we get ourselves into! The Treasury never gives money away, without the expectation of getting it back.

But you don’t have to be a victim. Infact, if you are a little bit expert, you can make tax savings from the budget pension changes. Instead of taking your money all at once, you can time how you take your money to pay less tax. By using your pension savings when your other income is low, you may be able to avoid paying your normal rate of tax on some or all of the money you draw against. So another way of making sense of the changes is that the Chancellor is looking to reward you for being prudent and managing your retirement savings prudently.

But there is a third way of looking at the budget changes which may make more sense than either of the first two. It involves thinking about investment – and thinking about it from the Government’s point of view. At present, most private pension savings is used to buy annuities. Annuities insure you against living too long and they do so by investing your money into Government Bonds (lending money to Government). The other way of investing is to through buying shares in companies. The long-term investment of pension funds into shares is what has kept the stock market flourishing since the Second World War, but this source of funding for companies is drying up as company pension schemes stop investing.

In our view, and it’s the view of most pension professionals, the budget’s pension changes are going to stop people buying annuities and keep them invested in shares. Those who take their money at once will benefit the Inland Revenue, those who stay invested in shares will benefit the private sector. Annuities weren’t just unpopular with the population, they were unpopular with the economists!

There is a final piece of the jigsaw which needs to be put in place. If you take away the default investment (annuities) and don’t help people with the choices they have to make, you risk being seen as a Government who at best was irresponsible and, at worst was actually mis-selling pensions. Which makes sense of why the Government are putting in place the Guidance Guarantee which offers everyone free face to face guidance on their future choices. The intention of these sessions, which will be paid for by the financial services sector, is to ensure that people who use the Guidance aren’t victims but beneficiaries of the budget’s pension changes. Let’s hope that this strategy works and that people take Guidance, take good decisions and make the budget as sensible as it should be!



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How much should I spend on retirement?

People get frightened by this question – they shouldn’t! The simple answer is that we all pay into a national pension scheme through national insurance and you can find out what you’re likely to get from the State we completing a simple online form using this link. Finding out how much you get from the State is the first stage in answering the question – how much should I spend?


For most people, the thought of being reliant on state benefits in what will be “the longest holiday of our lives”, isn’t thrilling. Most of us will want to spend some of what we earn on our later years and auto-enrolment will mean that it’s a whole lot easier for us in years to come.

In case you don’t know about auto-enrolment, it’s the way money is automatically taken from your pay and put into a workplace pension chosen by your employer. The amount that goes in depends on your earnings and is generally around 3% of what you earn above £5,500.

For many people, the state benefits combined with the amount they save through auto-enrolment will be all they get from pensions. But will it be enough?

When we talk to groups of employees and give guidance sessions on retirement savings, we get people to think of their financial future in very simple ways. Understand your debt and aim to get yourself “debt-free” in later years. It’s nice to think of retirement as a time when you don’t have too many financial obligations. The less debt you have in retirement, the less need you’ll have for an income


When you’ve got your debt sorted, it’s easier to understand what you’ll need to live on. One way of looking at this is as a “the amount of income you’ll have to replace from earnings to savings”. The old rule was that you needed around 2/3 of your final salary from private pensions (with the rest coming from the state). But things have moved on a little since the fifties and sixties when company pensions started up. For starters, we tend to work longer and when we retire we often continue to do some paid work. That’s good because it means the amount of income we need to replace may be less than 2/3’s.

The not such good news is that while we may not need to replace all our income (especially if we continue to work and are debt free), the cost of replacing income is a lot higher than it used to be. This is because we are living a lot longer than we used to. Most people don’t think they will live as long as they do. As actuaries, we are always asking people to understand the impact of living longer- income has to be paid longer- savings don’t go as far.

This is one of the reasons that pensions have become so expensive to buy. If you’d like to find out how long you’re likely to live, you can press this link which will take you to our Death Predictor. You’ll be surprised at how long it will tell you – you’re going to live!

So once you’ve worked out how much income you need in retirement (to replace earned income with income from savings), then you can start to work out how much you should be saving. Please don’t be frightened into thinking you need to be saving huge amounts, saving regularly over time can mean you can build up a decent capital reservoir which you can either exchange for a pension (an annuity) or drawdown as an income while keeping access to your capital.

Age UK have a brilliant website which gives free and impartial advice on what you might get from your pension savings. We find that people we talk to, trust this site because it’s independent of any pension providers and doesn’t link you to any commercial provider of financial adviser. There’s plenty of time to go to commercial sites once you’ve got the basics sorted – so try their pages here and then move on.

You can get a pretty good idea of what you need from the modellers on the Age UK site and a good idea of what you’ll have to save to meet your needs. But to get the most from your savings – in terms of investment, tax-planning and the complicated choices awaiting you at retirement, you’ll probably need to pay for someone to advise you.

I can’t advise you, and you probably wouldn’t pay me if I could. But I can give you a very simple answer to the question I posed in the title of this blog. The amount you should pay into your pension scheme is “as much as you can!”

This post first appeared in

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A beginner’s guide to annuities


Annuities haven’t got a very good name at the moment. They are blamed for many problems which are not their fault. One problem with annuities is that most people don’t understand them! Another problem with annuities is that people have bought them carelessly without understanding what they have bought. A third problem with annuities is that they are solving a problem that most people don’t recognise exists, that most people are going to live a lot longer than they bargain for.

The annuities I am going to talk about in this article do a very simple job, they are called “purchased life annuities”, because you buy them for the rest of your life! The deal is this, an insurance company takes a view on how long you are going to live and then works out a sum of money it is going to have to put aside to guarantee it will pay you this amount till you die. It then tells you how much it needs from you to pay you an income.

So supposing I am 60 years old and a man and in pretty good health, the insurance company might work out that I can be expected to live another 30 years, and if I want the money to be paid to my wife after I died, 35 years. For every £1000 p.a. that I want paid me, the insurance company might demand £30,000 from me, being the amount they expect to pay-out. Except it won’t cost them that much as they can get interest on the money I give them which can go some way to offsetting the cost to them of the guaranteed promise. So they might discount that £30,000 to £20,000, reckoning they can get the rest in interest. This is how insurance companies “price annuities”.

Now there are all kinds of wrinkles that effect the price. Your state of health for a start, the insurer should be looking at whether you have an unhealthy lifestyle (smoking, drinking etc.) ,whether you have a history of early death in the family and whether you have any medical conditions that make you likely to die sooner than the average. All of this will bring down the cost of paying you your £1000pa. The insurer can tell a lot from where you live (some Chelsea postcodes have a 17 year longer life-expectancy for residents than some postcodes in Tottenham! And it’s nothing to do with football!).

And as well as health, there’s the question of what you mean by “£1,000”. If you want that £1,000 to keep pace with inflation – then it’s going to cost more. If you think inflation will be 3%pa it might cost 15% more to link that £1000 to inflation, but if you think it will run at 5%, that 15% could go up to 25% more. And this uncertainty makes it even more expensive, because the insurance company has to put money by in case inflation is 7% or even 10%. This process of “putting money by” or “reserving” as insurers call it, is a menace! There are a stack of EU rules about reserving that are designed to make sure an insurance company does not go bust, the trouble is that they mean the cost of an annuity is a lot higher. The extra security of UK annuities makes them almost 20% more expensive than the equivalent America product.

UK Annuities are amongst the most regulated and therefore among the safest ways of investing your money, you can find anywhere on the planet. The trouble is that that safety comes at a price. People considering buying an annuity need to consider whether they want to pay that price and make absolutely sure they get the price down by fully declaring all their medical problems to encourage insurers to drop their prices. People buying an annuity should take quotes from every insurer in the market and they should think long and hard about whether it’s right that the annuity ends with them or whether a spouse, partner and even the kids need some protection if they die early.

As you’ve probably worked out for yourself right now, buying an annuity, like buying a house of a business is not something you do without taking good advice. Many people will need help not just working out what kind of annuity to buy , but when to buy it. You may not need the guarantees now, when you are relatively young, but in ten or fifteen years’ time, things may be different.

So if you’re a beginner- don’t buy an annuity. The people who should be buying an annuity should be experts! A good adviser can make you an expert, you can make an expert of yourself, but if you use your pension pot to buy an annuity and take the first offer that comes your way, more fool you!

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Fear of feedback

Everyone knows what social media does. For every blog there are comments, every forum has its threads, some twitter conversations last for weeks. It is the interaction between author and reader that makes it distinctive. The “Letter in the Times” would look like this if someone pressed “print all”.



And in amongst the cheap jibes and the flaming , will be the genuine comments that take the debate forward, that ensure that the original idea is grounded in popular acclamation or consigned to the virtual paperbin – junk.

We are keen to leave feedback – good and bad. But the impulsion to complain is stronger than the impulsion to praise. Most feedback appears negative but its very existence is a testament to  engagement , no feedback is most dangerous – the parrot may be dead.

So organisations that establish digital services which allow people to read but not comment are running risks that are latent rather than evident.

Let’s say for instance that you run a 30 second video clip about you on You Tube but disable comments. That clip may find itself the subject of derision on any number of sites, you have no control of the content- the comments are with the threads that have sprung up elsewhere- such is the risk of virality!

The loss of ownership and control is compounded by the risk of dereliction. I am currently working on a couple of projects that involve databases which aim to be inclusive and comprehensive, designed to bring choice to the market.

Neither wants to include a feedback system (though there’s functionality for trip-advisor style rating and of course verbal feedback). Without the promise of a qualitative aspect to the listings, the listings will present choice with no direction. Filters can narrow choice but without feedback attaching to the choices, there is no referral system, no means to choose.

Similarly, those who have choices have nowhere to record their experience – good or bad, the natural wishes of people to comment (whether in person or anonymously) are strong. The drivers may be cathartic- to purge a bad experience or exuberant, to share a good one- but these expressions are always typically driven by a strong emotional  response.

Without these emotional responses, the information we post is derelict.

And this is the problem. The fear of feedback is that feedback is rarely measured and objective, it is nearly always emotional and biased. The fear is that the bias will be in the wrong direction and that the wisdom of the crowd may not be the “house view”. Worse , it may lead to litigation.

Without feedback, the information is derelict but with it, the information changes. Reading the comments I will re-read the original posting with new eyes.

Fear of feedback is more than a distrust of one’s public, it’s a distrust of one’s own position. The insecurity that leads to wanting to create a static piece of information stems from a fear of change, both in the perception of the post and of the person posting.

In one of the cases I am working on , I asked the question “what’s worrying you about feedback”.

The answer was fear not of the feedback but of the impact of the feedback on the project

  1. Those advertising would withdraw their listings
  2. Those sponsoring the project would withdraw funding
  3. People would take the comments as advice (with legal liability for the consequence resting with the owners of the database.

To which the counter-arguments are

  1. Those advertising have nothing to lose by being listed – if they are not liked they know how to change
  2. If those sponsoring the project are concerned about the commercial value, they should recognise that the comments are the project’s value and without them it risks dereliction
  3. A simple legal disclaimer, distancing the project from any comment is sufficient to mitigate legal risks to an acceptable level.

Of course a static site is easier to run, it does not need moderation and it will have no complaints (on the site). The complaints will appear elsewhere!

This sign appeared un prompted on the side of my tenement

No stupid people

Just a power-point slide, printed in colour and laminated, half an hour’s work!

Authority no longer sits with those with a title, it is bestowed on those who engage constructively and evidenced by feedback.

Those in authority have everything to lose by social media but everything to gain. Even if you reach the top, you need to be constantly revalidated. That is why Boris Johnson is doing such a great job- he is constantly asking for (and getting) feedback from those around him.

Without submitting ourselves to the judgement of others, our authority has no legitimacy. This is why we cannot fear feedback, we have no choice but to enjoy it.


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I was so much older then (I’m younger than that now)

ytfc kids

Thank goodness for kids- kid journalists for a start.

There is a gang on young journos who actually give a damn about the pensions they are in and are prepared to engage and educate themselves about what makes for a good pension.

I came across this on twitter yesterday

What I love about the article is that it is written from the heart. Kids (by which I mean anyone under the age of 30) seem to care much more about the quality of the pension they are in than people like me – for whom the damage of poor questions may have been done.

Speaking to Michelle, who wrote this article, it was clear she was keen on  her employer’s workplace pension and shocked to find that most employers hadn’t got a clue why they had chosen the pension scheme they had (for their staff).

This reminds me of something I wrote on a post in accounting web recently.

There comes a point when auto-enrolment becomes something that companies want to do,we haven’t reached it yet! But when it is as easy to pay people in pension contributions as it is in cash and when the pension contributions are valued as  part of total pay, then we might be getting there!

I hope that more young staff asking their bosses as to exactly why they chose the workplace pension they did. It is simply not good enough for employers to take this decision lightly.

I stood in front of 50 SMEs the other day and pitched to them. None were older than 40 and most were kids. Everyone cheered at the end, it was great to see entrepreneurs getting into the idea that they could make a difference to their staff’s pension funds!

It depresses me that we talk about pension as “risk” and advertise auto-enrolment by means of “fines” that tPR could dish out for non-compliance.

This is not what you’d do if you were a kid. If you were a kid you would be looking at pensions in terms of the awesome opportunities they gave to invest money cheaply, save tax and build a capital reservoir to spend in your old age.

We must exercise this love muscle that drives people’s decisions to join and stay in a pension.

And we mustn’t allow kids like the ones I’ve mentioned to end up old and jaundiced.

The statistics suggest that auto-enrolment opt-outs are much lower among the under 40s and much higher for the over 50s. Opt-ins by  non eligible are highest among the under 22s.

In pensions , the child is father to the man. I am slowly closing in on my second childhood!


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Safe, stable, regular and for life

I had lunch with Mr Sipp yesterday. Mr Sipp is John Moret and he has done more to pioneer the new pension freedoms than anyone else. I think the dodgy curry and glass of house white I bought him scant reward for the insights he gave me.

The title of this blog reflects the original aims laid down by the then Regulators for income drawdown. John reminded me of them.

Safe- money must be invested in assets that won’t go down the swanny

Stable- income arising from investment must be consistent from payment to payment

Regular- distribution of income should be able to mirror how we get paid when working

For life- an estimate of mortality should be used when modelling the drawdown.

Of course, all this became formalised in what became known as GAD rates, where the freedoms were circumscribed and it wasn’t till the advent of Flexible Drawdown a few years ago, that these restrictions were lifted (and then only for the pension rich).

John’s point was simple;- “safe,stable, regular and for life” appears to be what people want as an income in retirement.

By taking away the need to buy an annuity, live within the GAD  guidelines or have an a priori retirement income of £20k pa, the Treasury have said that there is no further need for intervention in terms of controlling behaviours. It could be argued that it’s done away with consumer protections because it thinks that consumers get it.

As I am writing this, I am sitting in a meeting of the Financial Services Forum hosted at the offices of DMG Media (the Daily Mail).

According to the Mail, 50% of its readers are behind the Guidance Guarantee initiative (a  huge approval rating) but only 10% say they’d trust the guidance. Understandably, people aren’t going to say they trust something they know nothing about. I’d be interested to see these questions re-polled in a year’s time.

If the Guidance simply concentrated on the four features of a retirement income stream, “safe,stable, regular and for life”, I suspect most people would feel very comfortable.

Would you have an alternative to wanting your retirement savings being safe? But what do you mean by safe?

Would you want other than a stable income -but what price would you pay for absolute stability?

If you don’t want a regular income, how are you going to plan your day to day expenses.

If you don’t want an income for life, what’s plan B if you live longer than you expect?

Sometimes the old ideas are the best. Whoever came up with the formulation “Safe, stable, regular and for life” is probably in retirement now (on a gold plated pension I hope!).

What we now have to concentrate in providing people with confidence in the products that they are offered. If annuities are not the answer, are drawdown products?

I worry about the capacity of people to manage their savings as “safe, stable, regular and for life” using individual drawdown and I don’t think that annuities are a suitable investment or insurance for middle aged people.

“Safe, stable, regular and for life” seems a pretty good sales pitch for CDC.



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A tale of two Cities

Law SocietyCity of London




Have you ever turned up at a place and realised you shouldn’t be there – but stayed anyway just to see what it was like?

That’s what happened to me yesterday. I went to an event about the “Future of the City” in Evershed’s posh offices near St Pauls.

The event had been organised by Policy Exchange and the Law Society so it was full of policy wonks and lawyers…and bankers.

Apart from a hatful of ABI-tes, I couldn’t spot anyone with an interest in pensions so I snuggled down and listened to the great things we were up to in Brussels and New York and Singapore making sure that London remained top-dog among financial centres and a jolly good place to live.

Having been told yesterday by Lib-Dem MP for Solihull Lorely Burt (don’t say it with a lisp), that Solihull had been voted the happiest place to live in Britain, I was sceptical of some of the claims for little old London!

London is certainly a jolly good place to live if you have money, and there was a little disquiet expressed about London having 5 of the poorest boroughs in the country (mostly on the outskirts of the City itself).

People like Will Hutton and Boris Johnson’s economic adviser Dr Gerald Lyons made me feel excited to be back living and working in London. Everybody was a bit spooked by an opinion poll that suggests that the Jocks may be off after all and there was much conjecture about what this would mean for us little Englanders left hanging on the fringe of the Eurozone. Other people were frightened about the deliberations of the European Court of Justice that might bugger-up London from trading Euro-denominated derivatives and there was general concern that we kept tabs on Johnny Foreigner who was coming down the Amazon, out of the Paddy Fields and into the financial markets with alarming energy.

After about 4 hours of this stuff, we all adjourned to a bar set up by Eversheds for a few stiff ones before doing battle in the final session on “Financial Regulation”.

With tongues loosened by such libations, the final debate which didn’t wrap up till 7.30, was a Grand Guignol , delivered in polysyllabic streams of consciousness by strategists high on the fumes of their own intelligence.

Grand Guignol

For the record this was the line-up

Chair: Sam Fleming (Financial Times), Chris Allen (Barclays), Anthony Belchambers (Cross Border Regulation Forum), Mark Boleat (City of London), Hugh Savill (ABI).

I have to take my hat off to them all. Male and Pale they were but never stale! Boy could they talk and boy could they fight!

These bankers are schizzo. They have had to wear a public and private face so long that they have developed split personalities.

One face is their City face, where they assume their mantles of masters of the universe, controlling the flows of capital around the globe and ensuring that the politicians understand the implications of their banking decisions.

The other is the public face, where the public moan about being ripped off by PPI, Credit Derivatives and Libor, where financial advice is substituted for “sales target practice” and the consumer is commoditised into “banking hall foot-fall”.

Me and a bloke sitting a couple of rows back tried to point out that what they’d been banging on about for 60 minutes would not play too well  to the consumers, I felt like Swampy and the rows of suits that surrounded us seemed to turn into police uniforms. Would we be kettled out of Eversheds?

But no!  Once we’d got our initial kicking, sense appeared. One chap more or less admitted to me that  “for big-boy bankers to be masters of the universe, little-boy bankers are going to have to stop misbehaving and spend a little less time on the naughty step”.

As I walked out into a late summer City evening, I cogitated on the two cities. The City of London is controlled by the likes of Mark Boleat, they make the money that makes it the most prosperous square-mile in the world. But there is the bigger City we call London but is really a massive conurbation of diverse ethnicities, living standards, religious and cultural beliefs.

London cannot do without the City of London but the City of London needs the great sprawling metropolis that surrounds it – on which it feeds and onto which it defecates its largesse.

It really is a tale of two Cities and I’m glad I’m a part of both.

two cities



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What payroll can do to keep away the loan sharks.

loan shark

We all know the sharks that swim in financial waters preying on the weakest and driving them and their families into deeper debt with all the social and health problems that “deep debt” brings.

And I’m sure that if it were within our gift to give the people we operate payroll for, a better option than the 1000% + payday loans, we’d be keen to help.

So when I got an invite from Ceridian to go to Westminster and hear Lindsay Melvin of the CIPP and Treasury minister Andrea Leadsom talk about how payroll can work with credit unions, I rearranged my diary.

And I’m very pleased I did.

There are a number of studies both here and abroad that show that those with acute money problems can’t focus on their work and are less productive as a result. There is a commercial argument for employers to pay attention to this area of staff welfare and many good employers do offer confidential counselling where it is needed.

But the chronic problem with debt can only be solved by getting people to be “money saving experts”. Regular saving can create a capital reservoir that pays for the boiler blowing or the washing machine breaking down. But many find that organising themselves to save is hard. That’s why Christmas clubs exist.

Since the introduction of auto-enrolment, payroll has helped over 4m employees to save regularly for their retirement. The payroll industry had no choice in this and I’m sure that many reading this article will say “small thanks we get for it”. I work in pensions and I know that payroll did the heavy lifting and those I work with right up to the Pensions minister know it too. And there’s none of us who wouldn’t want to praise you for making AE work.

To throw at Payroll a further challenge of organising payroll saving into credit unions may be an “ask too far”. But it’s a challenge that payroll should accept. There is a triple win if we can get payroll saving to credit unions into our DNA.

  • Employees get a means of getting short term security and the back up of access to a much cheaper form of finance if they get into trouble.
  • Employers get to help staff stay away from the sharks, so increasing productivity
  • Credit Unions get a reliable source of funding and a more creditworthy customer.

The CIPP has recently completed a survey of 2000 low-paid employees (the average income working out at just over £16,000). The survey asked

“if you don’t currently save for a rainy day through your payroll would you consider doing so if offered by your employer?”

41% of respondents said yesterday and a further 24% thought they might do.

I personally save into a credit union, not out of altruism, but because it gives me a good return. I found out about them from Martin Lewis

But it makes me happier to know my savings are doing good , than lining banker’s profits and I’m sure many of you will feel the same way if you set up a credit union savings option from your payroll.


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“Savers who cash in their pensions face charges of up to 20%”

which 4


I repeat the Daily Mail’s headline which is absolutely accurate.

I am glad that they did not use the word “penalties” as this implies a non-contractual lock-in being imposed by insurers. This is not what is happening. Insurers are only applying the rules in the policies we took out in the 70’s, 80;s and 90’s but as Ruth Lythe puts it.

“Most savers will not even be aware the charges exist as they are buried in the small print”

I spoke with Ruth during her research for this piece. She’d picked up on my piece earlier in the week in which I explained just how easy it was to take more commission from a pension policy just by filling in a couple of boxes to your benefit and not the clients, I even admitted to having done this myself. The article’s here

Of course the “reason why” letters always had an explanation for extending the life of pension contracts (and thereby creating early surrender charges) which meant that compliance officers gave such bad practice a big tick. The various regulators were comfortable as long as the boxes had been ticked and the whole charabanc moved on from one record quarter to another.

Who do we blame?

It was not just the guys who sold the policies who got rich, it was people further up the pyramid. Blame needs to be shared but it cannot be ducked.

The comments from Daily Mail readers suggest that they are not particularly interested in pointing the finger at any part of the process or to any particular person- the whole stinking mess is to be avoided.

I remember talking to journalists about this problem in the 1990s and explaining how the policies we were selling then would be maturing in the first three decades of the next century. It was hardly newsworthy. Though journalists could understand what the issue was, they couldn’t make copy out of it and so the practice carried on – unhindered by consumerists, unreported by journalists.

One brave soul in the Mail’s comments tells another reader he should have paid attention to the small print. No doubt he was one of the ones who did and bought wisely (or luckily). But people have got to learn to be better buyers before we can solve the problem of mis-selling.

Who do we praise?

Martin Lewis makes “money-saving-experts” of his readers and teaches them how to buy simple things better. He teaches techniques of bartering, how to use Maths to work out which is the better deal on butter or soap powder, he teaches people to fight back when they have been wronged.

I take Martin as my hero and my website, sets out to make better buyers of small employers who are buying pensions on behalf of their staff. This blog is part of that process.


Are things any better today?

But there are headwinds. We need professional advisors, accountants, financial advisers and the finance specialists within these companies to step up to the plate and become “skilled and knowledgeable”, purchasing with precision.

Instead we get discouragement from a trade body and a pension regulator

Although giving advice to an employer regarding their choice of pension scheme and/or fund is currently unregulated, TPR believes that people without the right skills and knowledge should not be giving advice or expressing an opinion on this and we recommend sticking to fact based communications on this matter.

“There is also a risk of blurring the edges and straying into the regulated advice space, if the individual representing the employer is or will be a pension scheme member, as they could be investing their own money into the pension scheme.

“We believe that the ICEAW have published a handbook which advises their members against giving advice or guidance to employers on the choice of pension.”


Is the new regulation any better?

The regulator has swung through 180 degrees. From the laissez-faire of the 80’s and 90’s to the prohibition of advice from anyone with the chalice of “skill and knowledge”.

I wrote a comment on the thread of the accounting web article that contained that statement and print it in full here

The problem with using a phrase like “skill and knowledge” is that it is absolutely meaningless. I work for a firm of actuaries that have skill and knowledge coming out of their ears, but most actuaries have no means of applying it to 5 man companies trying to choose a workplace pension!

You can have level 6 qualifications as a financial adviser and still not understand how hooking your payroll up to that provider is going to cause problems, you can’t learn the skills of understanding a company’s needs and matching them to the right workplace pension.

The Pension Regulator is “risk-based” which means he would like minimum scope for litigation. The Regulator would like factual presentation without “opinion”. This assumes that employers will be able to look at pensions data and make rational decisions by properly comparing the propositions of NEST and AEGON and NOW and Legal & General.

This is simply beyond most employers., THEY NEED OPINION, they need simple statements like “look- if your average age of employee is over 45, NEST doesn’t look a great deal” or “Legal and General works for employers who want x,y and z”.

Organising all those nuggets of information into one place and then using technology to produce messages which say “employers like you choose x” is very difficult , expensive and risks failure. But it’s what the 1m plus SMEs and micros still to buy their workplace pension need.

Steve mentioned that they can get all this information and come to a decision  (with a thick 40 page actuarial report recording how they got there) £500. He’s right –

If small practices are going to get involved- (and if they don’t who will?), they cannot take the risk of choosing a pension on themselves, they should tell their clients to use a repository of skill and knowledge and get them to click that link.

We can’t all be skilled and knowledgeable, but bosses can be better buyers!

Until we can find a way of making those who buy the pensions for us “good buyers”, pensions will continue to be bought without anyone reading the small print. We need proper information that genuinely helps the 1m employers to take sound decisions for their workers and we need it delivered in a way that suits us in the second decade of the 21st century.

I put my hands up- as a financial adviser between 1984 and 1995 I was part of the problem, as a social entrepreneur in 2014, I am part of the solution.




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Is an annuity an investment product? Perhaps not!



I have been worrying about a presentation I have to deliver to an investment group on the value of annuities.

I have long felt that annuities are a rubbish investment and UK annuities a particularly rubbish investment.

My confidence fell still lower when my chum Alan Higham started tweeting me some heavy doodoo.

Alan wasn’t just talking big- he’d done the maths.

And he carried on….

This last tweet turned a light on in my head.

If the underlying securities which back your annuity are the same in the UK and the US but the income from the US annuity is 20% higher, either UK annuities are considerably less efficient or there is a greater degree of security from our income streams.

15 years ago, I spent some time with Mike Orszag who’s now Head of Research at Towers Watson but was then researching annuity costs at Birkbeck. He concluded that the UK annuity market was efficient, relative to other annuity markets. You can read his research (which has been updated but makes the same conclusions) here.

Last year I went to Kingswood to visit Legal & General who showed me the accounts behind their individual annuity book. L&G are not making huge margins and their business is efficient.

So how can we account for the differential between UK and US annuity rates?

The answer (for me) rests in perception. Annuities are not investments, they are insurances. The pension annuities we purchase are specifically an insurance against us living too long.

Insurance is unfashionable and investment is sexy. Insurance is boring but it brings peace of mind. Investment is flashy and doesn’t! The two concepts are faces of the same coin and many investments are sold as an insurance (against for instance inflation). Sadly annuities have been sold as investments (and they really don’t stack up well).

I could go off on a long tirade against the damage done to the UK annuity market by EU Solvency II and other regulations including the infamous gender equality rules – but I won’t. These regulations are what make for the 20% differential  between US and UK annuity rates but they are the symptom not the cause.

America has a history of institutional failures within financial services, Fanny Mae and Freddie Mac, Lehmans and Bear Stearns and the Savings and Loans crisis all resulted from “under-prudential” financial legislation.

We cannot have our cake and eat it. If the price to pay for guaranteed annuities is the reduction in yield occasioned by reserving under solvency II, it is a price worth paying- if what you are after is an insurance.

My mistake- and I count it as such- is in confusing an annuity with an investment.

The 2014 budget reforms have cleared my foggy brain. If I want to invest, I use flexible drawdown and flumps, if I want to insure I use annuities and if I want something in the middle , I use CDC.

And I think I know what I’ll be saying when I talk at the Investments Network meeting on 16/17th October




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Does anybody care what you think?



I bet you’ve sat in an exam hall , or been asked to complete a questionnaire or stared at the comments box below an article you’ve read and gone “nah-better not”. The rubric is that “your views matter”, but do they really?

Because on these “one to many” responses, you are going to be judged, and while the upside is unclear, the downside is immediately obvious, your opinion doesn’t matter to the examiner, the pollsters and the readership; nor do you. Best stay quiet – best not show off.

I’ve just completed 31 questions asked by the FCA on a consultation about Internal Governance Committees. I’d looked down the list of people who’d be interested in responding and found I could respond as Pension Plowman (workplace pension holder), Pension PlayPen (workplace pension search engine) or as First Actuarial (workplace pension analyst).

I was asking the same question as you “do they care what I think?”

But to answer that question , you have to know who’s asking it. It turned out that the bloke organising this was someone I know , Jonathan Reynolds – who’s a nice decent guy.

This is what the blurb said

We want to know what you think of our proposals.  Please send us your comments by 10 October 2014 in writing or using the online response form on our website.
We will consider your feedback as we finalise the new rules. We intend to publish the rules in a Policy Statement in January 2015

So Jonathan was asking me (Henry) to feed into the final rules that would govern my retirement savings plan, and those of my colleagues and clients. Oh and to the 1.2m customers who might rely on and the 6m people still to be auto-enrolled.

Now this is a specialist interest of mine and I wouldn’t be expecting too many clicks on that online response form link . But I thought I’d tweet the link with a bit of encouragement anyway.

Because whether you’re weighing up whether your company or organisation should respond, or if you’re thinking about whether you’ve got something to say, then you almost certainly have. And even if you don’t say anything original, or say something stupid, you are not going to be doing any harm.

But this is where it gets a bit tricky, because you don’t know who is judging you and you don’t know where it will end. I remember when I was a junior meeting Barbara Castle and telling her that SERPS seemed much more sensible than contracting out of SERPS (to me). And she quoted me in the House of Lords and when the PR firm who monitored mentions of Eagle Star picked up on this , I was invited to see the Head of Government and Industry Affairs who demanded to know what business I had speaking for the company like that.

And of course he was right, I should have said, “the views expressed are my own and not necessarily those of my employer”.

But that was then. That was when we didn’t have senior civil servants washing up your tea mug , or @greggmcclymont sorting out labour policy on @twitter or Martin Lewis getting PPI redress for 4m policyholders from a link on

This is now, and now is Open Government, social media and the empowerment of your voice. Your submission, when it arrives at the FCA, looks exactly like Standard Life’s or the ABI’s. Judging by the feed back published in recent paper (you are as likely to see an individual or at start up like Pension PlayPen quoted as any of the big players.

Now knowing some of the people on the other side of these submissions, I am confident that you will be heard, your opinion will count – and just because you have responded -because you did give a toss- your opinion is that much more valuable.


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Freddie Flintoff’s fabulous comeback; T20 Finals Day


The Blast Finals Day held at Edgbaston is the best value major sporting event of the summer. For £50 you can get a full 11 hours of cricket and a bunch of support acts including the magnificent Mascot Race, a heap of local bands playing on three stages and the awesome spectacle of the Hollis Stand- packed with revellers assembling beer snakes, racing up and down the aisles in fancy dress and singing Sweet Caroline (too many times).


Yesterday’s event was won by the Birmingham Bears (aka Warwickshire and our hearts were won by Andrew “Freddie” Flintoff. We were fortunate to be standing adjacent to Flintoff , as he made his way out. Not a perfect shot – but I wasn’t the only one!



To my 16 year old son, this was extroadinary in itself, but what was to follow will remain a sporting memory for both of us. All afternoon the Hollis had been chanting “ooo Jimmy , Jimmy” and he’d opened the bowling.


After an over of spin at the Pavillion end, Fred was on. His first ball deceived Ian Bell who played through it too early and skied a catch to Parry at long on. Parry snaffled it- right in front of us and Freddy had his wicket. It was a great catch and there were great celebrations.

Twice in the Bears’ innings I was able to glance at a scoreboard to see A Flintoff and J Anderson bowling in tandem.




But that was not it! With Lancashire falling ever behind the run-rate and Woakes recalled for the coup de Grace, Freddie arrived at the crease. After a couple of sighters, he launched two massive sixes into the crowd to leave fourteen off the final over. Sadly the faiy tale did not quite happen and Lancashire fell four short as Freddie lost strike and his partner could only hit two of the final six needed off the last ball- but it had been a great final- Freddy’s final!


Earlier this summer I had been able to watch Nick Faldo and Rory Mcilroy play adjacent greens at Royal Hoylake. It seemed an appropriate handover. Watching Freddy handing over the crown of popular acclamation to Jimmy Anderson had a similar significance. I’m of an age when the inter-generational transfer is happening as my son becomes an adult (and a very nice bloke).

This final is great because of the people and though it is not on terrestrial TV, it is – as an event- the better for it. Sky revenues keep down the price of tickets making this an event for the cricket enthusiast, most of the boxes that line the West and North sides of the ground were empty but otherwise Edgbaston was packed. Packed with real fans.


Ironically, giving the event to mainstream TV would probably force it into the mould of the TCCB events that are so sanitised that they have lost the carnival atmosphere the T20 Blast retains. This was like Notting Hill – an event I’m off too today.

Freddy and Jimmy are only the half of it. My team- Surrey- were pretty poor other than for Jason Roy’s magnificent 58 and the usual whole-hearted performance of Batty and Ansari. Hampshire came and went but in the event Porterfield (my performer of the day) , Bell and the Birmingham team brought pride to Edgbaston and Warwickshire cricket and no-one could begrudge them the NatWest trophy.



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We knew we were cheating our clients.

Faux naive


Mark Wood (now of JLT and formerly of the Prudential) is calling on insurers to relax the early exit penalties on pension contracts set up in the “bad old days” when commission was paid in advance for premiums paid over the life of a contract.

To understand how these exit penalties came to be, we need to understand how these products were sold.

An adviser had a choice, either he could take 5% of the first year’s premium and 5% of subsequent premiums (single premium costing) or he could choose to take indemnity commission where the 5%’s were added up and discounted back to typically an adviser got paid up to a whopping 75% of the first year’s premium with a lttle on the drip after that.

The incentive to “take your money and run” was overwhelming

Firstly, the chances were that you working for someone else and if you left their employ, you could kiss goodbye to any recurring commissions- so 5% was all you got. Even when you had a proper contract (as I did with Allied Dunbar) , the insurer could turn off repeat commissions and there was nothing you could do about it.

Secondly, the way that contracts were established meant that the customer didn’t see any of the damage of your taking upfront commission as (in those days) stockmarket growth was assumed to dwarf the measly 6% pa charge on units purchased in the first two years.

Thirdly, we all knew that the persistency of payments from our customers was unlikely to last long, so even if we did offer a single premium costed contract, we wouldn’t get rewarded for long.

While the adviser had no difficulty taking the decision to get paid up front, the client had no idea that there was a choice in the matter. Somewhere on the application form, there might be a box that could be ticked for single premium costing but we skilfully bypassed this choice and defaulted all our clients into contracts where we got paid plenty of Wonga upfront.

I understand that Mark Wood’s argument on these personal contracts runs like this..

contracts were silent on exit penalties because when they were drawn up no one envisaged that access rules would be changed. People should not be penalised for accessing their cash when legally possible, that would be against the spirit of the contract.

This misses the target by a country mile

Access rules haven’t changed and people were sold access from 50

Every insurer in the 1980s and 1990s was holding out the possibility of early retirement, many showed projections of how by paying extra, you could bring forward your retirement age. In our brave new world, 50 would be the new 65.

But while the sale was about early retirement, the contract would be structured to push back the selected retirement age. There was another box which had to be filled in which determined the selected retirement age of the policyholder. The formula for an adviser to be rewarded was anything up to 2.5% pa of the first year’s premium x the number of years to this selected retirement age.

So for a 35 year old, maximum commission could only be achieved if the SRA was 65. I would hazard a guess that all advisers tried to avoid commission dilution by ensuring this 30 year earn-out, even when it meant pushing SRAs for 40 year olds back into their 70s.

A common trick was to explain to a client the advantages of adding a waiver of premium to the contract that ensured the premiums were paid by the insurer in the event of a long term illness. Since the cost of “WOP” was on a fixed basis, setting the SRA as late as possible was to the policyholder’s advantage (so long as the negative impact of extra commission was not taken into consideration). WOP was a smokescreen.

Insurers and advisers were complicit in this deception

Far from discounting the possibility of early retirement, the industry openly encouraged it, while offering incentives to create penalties which would only become apparent in many years later.

And nobody noticed

For even when the client stopped paying contributions (usually because they got a job where they got a company pension and had to stop the personal one), it wasn’t apparent there was a problem as the penalties did not crystallise.

The point at which clients started noticing something was amiss would be when , even in reasonably good years, the growth on their pension pot was minimal (and in bad years the losses substantial). Many customers tried to escape from these poor performing contracts and this is when the coin dropped.

Because when you get a transfer value, it takes into account all the charges the insurer was expect to take on your pot but wouldn’t (if you transferred it away). Often the transfer value would be substantially less than the premiums paid, always it would be a lot lower than the “notional” value of the pot.

That wasn’t to say that the transfer value was bad value, it might have been good value. I wish I’d cut and run from some policies I took out in the 80s but I hung on , hoping for a miracle.

The early exit penalties that Mark Wood is complaining about are the direct result of deliberate collusion between advisers and providers to the detriment of policyholders. The problem was rife and only the non commission houses (ironically principally Equitable Life) did not indulge.


Arise Saint Mark

So that’s the history; like me, many people have hung on to these minging personal pensions hoping that a miracle will happen. Arise St Mark, to magic away all the exit penalties still applying to these policies! A miracle is on the horizon and we have the saintly Mark Wood to thank for it.

Eagle eyed readers will have noticed that this saintly Mark Wood was on the other side of the fence in his previous life with the Prudential. Infact he had overseen the system by which these changes had come into being! Infact his overall remuneration was  linked to the sale of these policies!

I don’t know what Mark Wood is after. Perhaps he wants to follow other alumni of his era such as Sandy Leitch into the House of Lords or maybe he just wants to win some brownie points for JLT.

Simply penalising life companies is not the answer


But I can’t agree that there exists a prima facie case against life companies which would require them to do a PPI and refund all the monies deducted through non-disclosre.

For one thing, there was disclosure, it just was obscured by advisers who were able to sidestep the difficult conversation about the likelkihood of the client staying in his current job for the rest of his life. For another, the salesmen of these contracts were smash and grab merchants. The old idea of the man at the Pru, with his bicycle clips and loyal round of customers was already an anachronism by the time I started selling insurance (as a financial consultant in 1983).

We knew what we were doing, the life companies knew what we were doing and it seemed that the Regulators were complicit- I never saw sanctions against advisers who took indemnity when they knew a drip approach to commission was in the interests of the client. I never saw an adviser taken to task for extending the term of a pension contract when there was no reasonable cause (and the Waiver of premium argument was typically spurious).

The contracts were wrong from the start

These contracts and their terms had been designed for the professionally self-employed, partners of law-firms, stock-brokers and accountants who could expect to stay in one place and contribute regularly for the whole of their lives.

The honest truth is that the whole system of indemnity commission went wrong when the Government started encouraging insurance companies to re-use these contracts to provide the pretence of security to people who would change jobs and have periods  of unemployment, the vast majority of us unfortunate enough not to be in a company pension scheme.

Insurance companies, coming under pressure from Mark Wood should point out that they simply extended access to what had stood as good practice in a previous market. What could be more Thatcherite than to treat the plumber like you treated the barrister? And what could be more financially ruinous to the plumber’s wealth..

We’re all in it together

Any Government that decided to attack insurance companies on their legacy, would have to explain the complete failure of its Regulators to impose any kind of discipline to the sales of these products between A-Day in 1987 and Z-Day in 2013 (when the RDR finally did for commission).

Nor should journalists, broadcasters or the legion of think-tanks and commentators who have failed to pick up on this muddy stuff be exonerated.

What happened was a systematic process that transferred personal savings from the policies of those who most needed to save, to the bank accounts of insurers and their salesmen. But to suggest that we can escape the consequences of that by dumping the bill purely on the insurers is both unfair and illogical.

Sadly, we must accept that like those expensive colour television sets, what seemed good value then, now appears to be a rip-off. And we must use some of the experience we have gathered from the past, to make sure this does not happen again.



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We must party – it’s in our DNA!


Tonight it’s the Pension Play Pen party and well over 100 people have put their name on the guest list!

If you haven’t worry not- there are still several hours to tell us you’re coming and heh! -mention you read the blog and I’ll be on the door to shake your hand, give you a hug and go whoop!

All are welcome to enjoy a summer’s evening by the Thames, eating,drinking, singing and having a good laugh.

Sign up here

Nearly £1200 has been put behind the bar by our sponsors

Top Dog- Ed Holt

Super Dogs- Andy North, Martin Good, , Andrew Riley, Laura Catterick, Bill Whitehead  and Dianne Beer, Bob Ward (Friendly Pensions)

Excellent Dogs – Andy Agethangelou, Helen Coulson and  Aftab Siddiqui

So why?

It’s in our DNA to want to get together , have fun and relax. We started the Pension Play Pen so that online people to get together in the real world and get to know each other.

So far this year we’ve been to Cheltenham together , played golf together, been to the theatre together and we’ve even prommed together.

We don’t have a budget, we aren’t a charity, we don’t have officers, we – as they say in social media circles- FLUID.

This is no longer a social experiment, it’s a way of fun!

So if you can find a way to be in London tonight, please join us and reinvigorate your DNA!

Partygoers mallowstreet party 032 mallowstreet party 027 mallowstreet party 035 mallowstreet party 019 mallowstreet party 030 mallowstreet party 005 mallowstreet party 002

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Making a buyer’s market for pensions


Organisations such as Which have always charged a subscription for their research. Those prepared to pay a regular monthly amount built libraries of reports which help us purchase everything from groceries to credit cards. Which put its readers in control- made them good buyers -made buying sexy.

Which 2

More recently, consumer research has reached a wider audience, through which has become an online resource for all types of people, rich and poor, savvy and inept. Martin Lewis’ stroke of genius was to demonstrate time and time again that he’s on our side. When he tells us he is making money, he tells us how much , we feel there is a price there, but a price worth paying. Martin makes money saving experts of us all.


There are very few professional firms who have properly mastered the provision of on-line services paid for  through a paywall (Paypal,Sagepay etc). Google “on-line conveyancing” or “on-line accounting” and you get a number of offers , many at a clear fixed price. But this is a murky market reliant on professionals who know what they are doing.

But google “online pensions” and all you get a clutch of Government websites and offers from insurers waking up to the 21st century. Where is the research and the route-map that “Which” or MSE gives you to enable to start and complete your purchase simply and thoroughly?

I know you ‘re awating a flabby crescendo where I advertise (there I just did) but let’s think wider than that. We need a new sales model.


When a company purchases the know how to do something, whether it’s a legal service, accounting or pensions advice, it is asking to get a job done. If you are a lawyer, you do not  add £10 a month to the mortgage payment to get your fees paid, if you are selling payroll or accountancy software , you charge a fixed price (with an optional maintenance package). People know how to buy and sell and if they don’t want to pay their estate agent 2% to sell their house, they negotiate. At least they know what they pay and can assess VFM.

Financial Services has got to get in line with other services if it is to be trusted

Financial services companies are obsessed with charging for their services over time. The only online adviser I found on the first two pages of a search for an online workplace pension , concluded its initial pitch

We work on the telephone and through emails which means we can keep our costs down to £100 per month.  With one payment of £100 and a direct debit mandate to commence on your “staging date”

It seems a small amount but what’s this about? I go online to get things done and by and large I want to be in control. Why should I pay £100 per month?  Answer;-  So that..

you will no longer have the worry and stress of putting something in place, it’s now taken care of

It’s the same old problem with financial services- it’s all so hard you need an expert to take the problem away. But think of the logistics- 1m employers paying £100 pm to have their hand held? £100m a month, £1.2bn a year to make auto-enrolment work?

This financial model doesn’t make long-term sense for anyone.

We have to make financial products clean and that means doing away with our obsession with creating an annuity stream from a defined client bank.

Like Which and MSE, those of us who are selling a limited service should not talk about “our clients”, rightfully they are our customers, they become our clients when they voluntarily return to us to buy again.

The key differentiator between is that we don’t want an income stream from our customers. Sure, we’d like repeat business, who wouldn’t? But our model is “purchase and go”. We have 1.2m customers out there who need to purchase a workplace pension. They can purchase badly or well, with us we’d like to think they’d purchase well and we charge £499 +VAT to make sure the service is good and remains good.

which 4

No kickbacks, no inducements, no commissions, the money is paid by the employer.

If an employer wants to avoid paying the £499, they’re welcome, we aren’t going to come after them with pitchforks demanding a pound of flesh. We’ll be pleased to have helped , though sorry not to have helped more

And we don’t offer any guarantees. We do not guarantee satisfaction because we cannot guarantee satisfaction, we offer our “best endeavours”, or as non-actuaries would say “to do our best”.

It is not just advisers who’ve got it wrong, purchasers have got it wrong. The OFT’s collective jaw dropped when they saw how bad UK employers were at purchasing workplace pensions for their staff.

The answer to better purchasing is better selling. Selling a service which relies on research and is pitched at solving a specific problem does not require remuneration over an extended period (think conveyancing).

The great achievements of Which and MSE is that they’ve made a buyer’s market. With 1.2m employers still to stage auto-enrolment and 200,000 new employers born every year, it’s time we did the same with workplace pensions.

Which 3

Have a look at again, it’s changed – we hope it’s improved- we’d like your feedback!

Oh and click while you’re there – that’s the closest we want to get to you!



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Freddy Flumper gets savvy!



It’s been some days since I’ve reported on the fabulous Freddy Flumper -“fabulous” in the sense that he lives only in the fable on this blog.

For anyone who missed the instructive fable of Freddy and Tony Lamborghini , we left Freddy “chicked up” as his long term retirement strategy of financial prudence left his bitter rival in the gutter (nursing repair bills on his new motor).

News of Freddy’s savviness soon got round town and it wasn’t long before he got a call from the local financial wise guy – Andy (forever) Young.

“Freddy, I think you should take a note of the following link It’s a death predictor!”

Freddy knew where Andy was coming from – the rumour was that Andy was that kind of actuary who didn’t just know when you were going to die but who was going to kill you. No one messed with Andy (forever) Young.

So Freddy, having written down the link on the back of his hand, checked out his life expectancy. It was good news and bad news.

The good news was that Freddy was going to live for a long long time; the bad news was that even with the (heroic) assumptions Freddy was using for his Flump, his Flump would not last his lifetime.

He decided to pay Andy (forever) Young a visit to review his options. He found Andy resting in a hammock on his veranda. The two were old friends so Freddy cut to the chase.

What should I do, Andy old friend? My money looks like it won’t outlive me and I’m keen to be as wise and sensible as you!

The old sage twizzled the cornstock behind his ear and remarked

Have you considered your state benefits Freddy? The State Pension is changing and if  you’re reaching your State Pension Age after April 2016 the amount you are entitled to will change too. All you have to do is go online and get your BR19 -which will tell you what you are due. Here’s the link

Having his Ipad with him, Freddy decided to request the statement there and then. The two friends chatted late into the night and Freddy began to see that what he got in retirement depended on him taking wise decisions now and in the remaining years of his life.

Andy told him that one of the options he could consider was to buy additional state pension and he gave Freddy another link so he could model the cost benefits of this option.

Finally, over a glass of aged Bourbon , Andy told Freddy about a new type of pension that wasn’t available yet, a pension into which Freddy could transfer the uncrystallised benefits of his Flump together with other pensions he might have (so long as he hadn’t cashed them in like Tony Lamborghini). This new type of pension wasn’t guaranteeing Freddy anything , but it aimed to provide him with a steady pension till the day Freddy died.

Freddy was relieved by this but wanted to know whether it might not be a bit expensive. He’d looked at lifetime annuities and decided they weren’t giving him enough to live on.

Andy explained that these new pensions (he called them CDC) were likely to give Freddy more pound for pound than annuities though they wouldn’t give Freddy quite the flexibility he had at the moment. He needn’t worry about the detail and the good news was that the way his money would come to him could still be a Flumps, the difference would be in something Andy called pooling and  Freddy understood to be a bunch of likeminded folk insuring each other against any of them living too long.

Freddy thought about this. Did he want flexibility or did he want to feel comfortable that his money wouldn’t run out in his old age?

Planning for his retirement wasn’t as simple as he thought and Freddy thanked his lucky stars he had a friend like Andy to help him through the maze,


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11 tips for advisers planning for April ’15


Source- Scottish Widows 2014


It’s been four months since the Budget and the aftershocks of George’s pension bombshell are still being fealt.

One by one, the policy decisions which will shape the way advice and guidance will be delivered, are falling into place. Those approaching retirement from April 2015 will be walking on a different moon. The constellation of retirement choices may reconfigure again if the Mansion on the Hill (CDC) gives ordinary people access to its many rooms.

With that splendid mixed metaphor digested, you might like to disagree with my top ten tips for advisers facing up to the challenge that lies ahead (I never find it much fun agreeing on everything!).

  1. Embrace the Guidance Guarantee. This is going to happen and you are either swimming with the tide or out at sea. MAS are looking to put together an at retirement advisor directory, make sure you are on it.
  2. Embrace technology; Skype is a way forward and there are many other ways to deliver advice more efficiently than jumping in your car,
  3. Monitor your meetings, look out for new compliance monitoring tools which can increase the efficiency of your advice, reduce the risks of you getting things wrong and provide your clients with a lasting record. Alexander House’s Nick Kelly is good on this
  4. Understand the new regulations and how they allow differentiated approaches that help different types of client. The HMRC guidance on the new flexibilities  is here
  5. Think payroll. The new means of drawdown are all PAYE, you need to have a strong payroll offering that can do the tax-work as well as disinvest and deliver accurately.
  6. Think about the trade-offs. Risk reduction comes at a price, the key differentiators between the various at retirement options are risk/flexibility and price. If the cost of a low risk, ultra flexible approach to retirement funding is an inadequate income, might the cost be too high
  7. Collaborate; to see us competing and slagging each other off is not edifying. People like Alan Higham got rich working with people like Martin Lewis. Advisory practices can work with pension consultancies, journalists, broadcasters and other mavens who have public support- Ros Altmann for one!
  8. Get out more! Spend less time bitching on social media and more time promoting yourselves- there are 1.2m employers still to stage auto-enrolment, I don’t want them as clients but you might! Use http://www.pensionplaype as your tool to build a retirement practice.
  9. Charge with confidence! The biggest difference between actuarial practices and IFA practices is confidence. Having worked in both, I see no reason why have FIA after your name should make it easier than having IFA after your name. It’s all in the mind!
  10. Congratulate yourselves. If you are in business today, it is because you rose to the challenge of the RDR. Thousands didn’t and envy you your application.

IMO, the new flexibilities introduced by George Osborne made retirement advice relevant to the mass market.

You are and will be talking to ordinary people about extraordinary amounts of money. £30,000 may be too low to replace a living wage, but it’s £30k more than most of us have had to spend at one time before.

Just look at the amazement on people’s faces when they win this amount at a game-show. How people use their retirement savings and organise themselves around the single state pension is critical. It’s a matter of planning and you are the experts.

Over the next twelve months , my firm First Actuarial and my website will get more referred business from IFAs than from any other sector of the financial services industry. We hope to put a lot of advisory work out to tender or simply in the hands of those advisers who we know and trust.

If you agree (or don’t disagree too much) with the 10 points outlined above, why don’t you contact me or one of my friends.

Tip Eleven!

We’d all be pleased to meet, share business plans and work out how we can make 2015 and onwards better for our clients and for us!

Tip 11 is to pick on one of our names and set up a meeting!

henry.h.tapper@firstactuarial London – Basingstoke – Basingstoke – Tonbridge – Tonbridge – Leeds – Leeds – Leeds Peterborough Manchester



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The instructive tale of Freddy Flumper and Tony Lamborghini



As I didn’t dare hope, the Treasury continue down the pension reform fairway.

Having hit a 325 yard drive into position A with their Budget reforms, they’ve hit a 275 yard second to the heart of the green with ‘uncrystallised funds pension lump sum’ (UFPLS)’.

They might have been looking at the legislative equivalent of an albatross if they’d hit on a clever name like ‘Flumps’ but we’re still looking at a regulatory eagle and are back on course for a Championship Win in April 2015.

The  excellent Will Robins has produced a very good summary of the different pension options available which are published on Citywire here. The only issue I’d take with his conclusion  that

for individuals in a scheme offering flexi-access drawdown there will be little difference between taking a UFPLS (Flumps)  and choosing flexi-access drawdown and maximum income.

Actually Flumps looks brilliant for the average Joe who doesn’t want to spend half his time with his adviser and accountant messing about with numbers- tax forms and investments.

What Flumps offers is the tax free cash on a “collect as you draw”, basis and to illustrate its benefits I give you a Pension Plowman fable.

 The instructive tale of Tony Lamborghini and Freddy Flumper

Tony lamborgini

Tony has had an eye on the £30k tax free cash from his £120k  pension savings for some time.

His anticipation increases when he hears that he can get all £120k (less a bit of tax)  from April 2015 (provided he’s 55 or more).   Happy days! Tony was born on April 1st 1960!

Now he’s  eying up a taster motor in his showroom which (along with his little blue pills) will do his status with the “laydeeez” a power of  good.

On his 55th birthday Tony gets a cheque for £84k (he had to pay 40% on the £90k taxable) and invests in a second-hand Diablo (remembering to keep back a few bob to pay for the petrol and servicing).

Tony’s accountant reminds him that he will be liable to 40% tax on any income from these savings but Tony is off chasing the chicks and will be till his next meeting with his accountant in 2016, by which time the car will be back in the showroom and Tony worrying about being 56 with no pension

By contrast, here’s Freddy Flumper, also 55 next April.


He’s   chosen to draw down his pot in bits, gets the first 25% of each drawdown tax-free (or as he says he gets 25% back in tax each month)

And Freddy has had the benefit of tax free growth on all his savings as he didn’t take his big tax free sum- what’s more, he’s continued to enjoy investment growth on his money rather than the puny interest he got from the bank.

But what makes Freddy happiest of all is that it’s all so easy. Deciding what he’s going to pay himself each month is down to a quick call to his  drawdown provider, or a quick adjustment via his provider’s website- heh!- Freddy can even work out what he wants to pay himself using his smartphone.

And because the people who operate the drawdown payment system are payroll experts, they know how to net off his tax and make sure (using RTI) that his Flump and his earnings and his final salary pension are all treated as one by HMRC so he doesn’t have to fill in lots of ghastly tax assessment forms.

For Freddy Flumper, his DC pensions have turned from a nightmare to the sweetest of dreams.

True Freddy is worried that his Flump might run out one day, especially if he lives too long or goes doo-wally in a nursing home. But he’s got an adviser helping him out and he’s looking at all kinds of options that are open to him including these new CDC pensions, the new super-annuities, he’s even looking at buying some extra state pension.

Freddy had a couple of month watching Tony parade his Diablo up and down the high-street and it’s true that all the crumpet wanted a ride- but that was then.

Now the chicks are all over Freddy as he’s the bloke buying the rounds  “steady Freddy” they call him!

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The FCA and Social Media (Canute II)



The FCA have set out their policy on social media which concentrates on the use of Twitter.

It is worth a read, if only to establish why the supervision of the internet is as feasible as Canute’s supervision of the tides. As Canute pointed out to his courtiers, it is possible to observe the shore getting inundated but very difficult to do much about it.

One such example is the recommended insertion of  #ad to highlight a promotion. Nobody hits a keyboard without the intention of promoting something and #ad presumably denotes an overt sales pitch which might relieve you of your cash.

I can see the use of #ad really catching on!

The FCA conclude that they’d like comments on their approach and that they will be consulting with “experts” in this field. It shouldn’t be hard for them to find them for the internet is crawling with lists of such people, created by scoring systems like Klout.

The FCA might have been better advised to start by asking the questions rather than trying to retrofit the existing COB into a new world about which they are clearly unfamiliar.

Indeed , in an excellent article, Panacea IFA point out that

Having been told by a number of influential financial services ’Tweeters’ (identified from our recent ‘Top Tweeter’ awards winners)  that they had not been consulted, Panacea Adviser has submitted an FCA FOI request as we would like to know more around who or what exactly “extensive industry engagement” represents. We have requested some clarification asking:

Who exactly have the FCA had “extensive industry engagement” with?

What is their level of Social Media knowledge, influence and expertise?

What is the FCA’s understanding of how a financial adviser would use Social Media based upon to produce this proposed guidance?

Having been told by a number of influential financial services ’Tweeters’ (identified from our recent ‘Top Tweeter’ awards winners)  that they had not been consulted, Panacea Adviser has submitted an FCA FOI request as we would like to know more around who or what exactly “extensive industry engagement” represents. We have requested some clarification asking:

Who exactly have the FCA had “extensive industry engagement” with?

What is their level of Social Media knowledge, influence and expertise?

What is the FCA’s understanding of how a financial adviser would use Social Media based upon to produce this proposed guidance?

The biggest problem is that this is all “one to many” and unless you create a wall garden- as for instance mallowstreet have, many people will be exposed to what the FCA might consider unauthorised promotions.

The obvious thing for the FCA to do is to talk to people who use social media by using social media but they have chosen to get us to engage with them using the old consultation method,

I had no idea this paper was out and being as active in social media as most people, this shows just how far the FCA are from the coalface.

It’s hard to butt into a concersation to which you are not invited , so I won’t be responding to the FCA. They have a duty to those who fund them, to speak their language and frankly the days of them sitting on their mountain top handing out decrees on stone tablets are over.

Social media should see to that!


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Warning- Flumping is not for cute dogs!

Warning- Flumping is not for cute dogs!

A new word was coined yesterday in the lexicon of pensionology – Flump!

Credit must go to Will Robins of CityWire and Claire Trott of Talbot and Muir.

Many of us know the Flump as a marshmallow and there are other less happy definitions in the urban dictionary but the Pension Flump is a whole new ball game!

Will’s genius is to convert a sorry name to a great idea into something everybody loves- like a kitten!

And now you are totally intrigued- here it gets sad – Flumping is no more than the act of drawing your pension as an

Uncrystallised fund pension lump sum (UFPLS)

Here’s Citywire’s excellent description

Don’t be fooled by this less than exciting name, this is a brand new way to take your pension. Much like the flexi-access drawdown fund you can leave your money in the pot and take it out when you need to.

However, the difference between UFPLS and flexi-access is the tax treatment of both the money you take out and the money left in your pension.

If you have £50,000 in the pension, the first 25% (£12,500) you take out under flexi-access is tax-free and any other money you withdraw after that is taxed as income. The money you have left is then taxed at 55% if you die.

Under UFPLS, the tax works slightly differently. If you have a £50,000 pension pot and you take out £10,000 the first 25% of that chunk you have taken (£2,500) would be tax free and the remaining £7,500 would be taxed as income. So you start paying income tax straight away but with each additional chunk of money you take out, the first 25% will be tax free.

This is not the only difference. Because of the way the money is taxed when it comes out the funds remaining are said to be ‘uncrystallised’ or in layman’s terms ‘untouched’ so it does not incur the 55% death tax if you die, provided the death is before age 75. This means any money remaining in your UFPLS pot can be passed to your family tax free.

Walker said this option would be better than flexi-access for an individual who is concerned about what they leave behind for their family.

‘The way in which you think about pensions may be different to mine, everyone is different. I may want to take some income out and leave as much as possible behind for the wife and kids and if that is the main priority then you should take income out [using UFPLS] and leave as much as possible behind without the government taxing the hell out of it,’ he said.

This looks to me as a very sensible way to draw your pension pot and the good news for those who have DC pots from a proper company pension (including AVCs) is that they too can be flumped!

There are of course some complications and you’d not want to Flump without looking at the small-print. If you’re the kind of guy who wants to cash your pension and then start saving more than £10k pa into another pension- then this is not for you. If you’re the kind of girl who has exceeded your lifetime allowance, then Flumping may not be your best bet.

But for most of us the message is clear and fun!

Don’t get the pension hump – FLUMP!








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Auto-enrolment’s tactical- pensions are strategic



The old questions “are you managing your business or is your business managing you?” and “fail to plan, plan to fail” are annoyingly true- annoying because they are business clichés and doubly annoying as they remind us of the opportunities we failed to grasp because we were “too busy with the day job”.

Part of my job at my company is to provide “strategic input”, for which I am dubbed by my colleagues “the overhead”. You need a thick skin to insist on investment rather than immediate profit-maximisation. To give me strength I remind myself of the note on the payslip of my first employer..


“We invest in our future- this means investing in the future of our employees “

I asked the HR manager what this meant. She was retiring and was known for having introduced a pension scheme for her staff – she told me “that’s to remind my FD why we pay into the pension,if I don’t do that every month, no one else will”.

She was right, within a year of her retiring the company had ceased contributions (1992) and it went out of business in 2009 without reinstating them,

The business didn’t go bust for want of a pension scheme but when the big bad wolf turned up, the house turned out to be made of straw!


The majority of businesses will approach the impending task of setting up a works pension and complying with auto-enrolment processes reactively. They will be driven by short-term considerations- minimising the immediate impact on P/Land  balance sheet. Issues such as the impact on staff relations, future retention and recruitment of staff and the success of the chosen pension in meeting its goals- will be secondary. Today’s numbers dominate conjecture about tomorrow.

But if you look back at the good decisions we took in building our businesses, they will be strategic – investment decisions!


The decision about auto-enrolment is not about whether but how to invest.

Today’s  imperative is that no matter how painful, we must follow the Regulator’s path towards compliance, NO ONE GETS LEFT BEHIND.

But the investment is yet to come. Once payrolls are aligned, an employer is left with a regular payment to the provider which escalates to c8% of payroll. Auto-enrolment turns from a tactical to a strategic issue.

It’s the same for staff. Pensions assume strategic importance to people when the pension pot is valued in thousands rather than hundreds of pounds. Those pots (post budget) no longer need to buy annuities, they can be used to pay off mortgages, buy round the world cruises- those pots are the financing tool for their dreams.

And when the penny drops, staff will ask themselves why it was that you chose NEST or Scottish Widows, NOW pensions or Legal & General.

And if they ask you why you took the investment decision you did- what are you going to say? “Seemed like a good idea at the time?”, “the Government said NEST?” “we’ve always used Aviva?”.

8% of payroll is a lot to pay for a disgruntled workforce!

If you are serious about risk management , you need to be able to say why, but to demonstrate that you took some care about it. As important is another old maxim that “if a job’s worth doing, it’s worth doing well.

The difficulties surrounding staging and setting up opt-out, opt-in and contribution processes will be forgotten, what will matter is the performance of the investment tool.

In a recent survey, the Pensions Regulator found that 63% of the 600 SMEs they asked, said that the choice of their workplace pension was important to them.

The Regulator reckons that more than 900,000 employers have still to choose a pension for their staff and that over 40% of them expect their “business adviser” to help them with decision. It seems that most micros consider their adviser to be their accountant or book-keeper.

I am reminded of the words of the retiring HRD


“If I don’t ……., no-one else will”


No-one’s going to thank you now for insisting your client or your employer takes the pension decisions seriously, but they may tomorrow.


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Why the IMA are so wrong about fund research.

daniel godfry


There had been signs that the Investment Management Association (IMA) was at last coming to terms with the needs of consumers and those who advise them to reveal the cost of owning their funds.

In May , Daniel Godfrey- its chief executive, promised full disclosure of costs and charges and the publication of the portfolio turnover rate of each fund managed. This summarised  IMA research published earlier in the year. You can read this blog here .

But recidivism has kicked in and in the three months between this “blog” and now, the new dawn has faded. This week saw the publication of another blog from Daniel Godfrey, explaining why the IMA weren’t minded to embrace European proposals which would require fund managers to unbundle the purchase of research on markets and stock from the price paid for buying and selling the stocks.

I don’t get it

As a layman, my first question is what investment research has got to do with the physical practice of trading in the first place. The answer, according to those like Mark Lawrence , COO of Fundsmith is that purchasing research this way makes life very easy for fund managers.

Assuming the research is valuable in itself, it can be used to boost the performance of the funds and is therefore seen as a legitimate fund expense that can be charged to the member. So a fund manager can run a fund with minimal research costs to itself and minimal management charges to the consumer. The fund manager is effectively outsourcing his or her research department.

But there seem to me some problems with this.

Firstly, the research is unlikely to be independent. The firms who provide these bundled services are “integrated”, they are typically banks who do everything from advising on M&A, flotations and the sale and purchase of stocks.

Case study

Let’s suppose they are advising on the flotation of a private company that wants to come to the stock market to raise capital, the adviser can give a nudge to those writing the research paper to recommend the fund picks up some of the stock that will be in offer. This keeps the client happy- he has his capital and the share price moves in the right direction. This keeps the adviser happy, his strategy is proved to have added value and he can trouser some healthy fees and it keeps the traders happy as they can offload stock that might otherwise have stuck with the bank (the underwriters of the issue) – as well as generating some commissions on the trade itself.

But is the fund manager there to keep all these people happy? He is not- his job is to keep the owners of his fund happy and it is a basic law of economics that if those on the sell side are laughing, those on the buy -side won’t!

The conflicts of interests created by buying recommendation on what to buy from the people selling you the stuff are obvious to any layman.]

But they are not obvious to the IMA, at least, Daniel Godfrey states in his blog

“Research associated with the use of dealing commissions is not an inducement.  Rather, it raises conflicts of interest, which need to be managed.”

Just how a fund manager is supposed to identify what the conflicts of interest are is not clear. If he gets a note to buy a stock that his dealer needs to sell the note is not going to read.

“Please buy this stock old chap or we’ll be left with it on our books and I and my mates won’t be seeing a bonus this Christmas”.

Untangling the genuine buy/sell note from that sales Spiegel may be a skill that fund managers can boast of (managing conflicts), but why should the manager be devoting his time to second guessing? Why should he not be researching the stock himself?

And then there’s the question of “inducements”.  Everything in this blog so far is based on the research purchased being read and acted upon. But the information I get from fund managers suggests that most of it is treated as junk and ends up in the shredder or the spam box.

If this is the case, why should a fund manager be wasting the money of those who own the funds buying junk?

It may be just a matter of laziness, poor processes, incompetence.

Or it may be that inducements are at work.

Buy my research, charge it to your clients, chuck it in the bin and enjoy the Wimbledon tickets.

Daniel Godfrey may state categorically that “Research associated with the use of dealing commissions is not an inducement” but we only have his word for it. I live , work, eat and drink in the City of London and I know exactly what is said , thought and done by those with the power of these huge chunks of money.

Some manage the conflicts and some don’t, some take inducements, some don’t.

The point is that we as consumers have no protection against bad practice other than voluntary codes put in place by the IMA and the fund managers themselves. And while the IMA are good at producing research papers and blogs that tell us what they intend to do, the fact of the matter is that consumers are still totally in the dark as to what is really going on.

Each month a new scandal is unturned, State Street stealing pensioners money from the Sainsburys Pension Fund, Barclays running dark pools with infra-red glasses, the rigged Libor-market, the mis-selling of swaps to small businesses, PPI!

What possible reason is there for us to trust the banks , fund managers and the IMA to manage the conflicts?

When the boxes at the O2, the Emirates, Twickenham and Wimbledon are packed with managers and brokers, why do we accept that inducements aren’t taken?

Thankfully, this matter will not be decided by the IMA, the fund managers and the banks but by Regulators. The FCA are on the case as are the DWP, they are not in the pockets of the fund managers like the supine NAPF who depend on the fund managers to fund their conferences and junkets. They are answerable only to Government and to the electorate, the consumers who pay the fund manager fees and the costs of the trading and research.


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“Value for money” key to DC Governance say FCA.

FCAThe FCA published yesterday an important consultation (CPA14/16) proposing rules for independent governance committees (IGCs).

The introduction of IGCs was agreed by the ABI as part of a deal with the Office of Fair Trading that fended off insurers being referred to a more serious investigation.

The main purpose of IGCs, as envisaged in this document is to “act in the interests of members in assessing and raising concerns about value for money“.

Assessing value for money involves weighing the quality of the scheme against its cost to members”.

This seems a much simpler formulation than the 31 characteristics and 6 principles on which the governance of DC occupational schemes depends.

Indeed the FCA narrow the “key elements of scheme quality” down to

  1. the design and execution of its investment strategy
  2. administration of the scheme, including communication to members and
  3. governance of the scheme including regular investigation of its value for money

For the FCA, value for money is central to governance and key to the member’s interest. There seems to be an acceptance here that while governance of administration, communications and investment strategy is static, it’s the investigation of value for money – that is where the IGCs contribute on-going value .

So what does an assessment of value for money boil down to in practice?

The Quality of the Scheme can be assessed against just three key services -



This could be described as what a DC scheme adds as value. An IGC that feels comfortable that the contract based scheme(s) it oversees carry out these duties satisfactorily can conclude that it is offering value.

But value can easily be eroded and a large section of the paper deals with its cost to members. (the money in a value for money formulation).

The consultation does not deal in depth with the methodology by which IGCs assess “costs and charges” but it makes it clear that there will be rules that govern the assessment, so that there can be


“public disclosure by firms of their IGC’s assessments in the IGC Chair’s annual report, to enable IGCs to compare their assessments with those of other IGCs”

In a recent comment on an accountancy website, a request was made that


What would be really useful ….is a table comparing the fixed and variable costs of the major pension providers

The value of the FCA’s proposals lies in their simplicity which allows requests such as those of this account to be met.

If we can have a simple formulation for “value”, a simple formulation for “money” and a way of comparing value for money between providers, then people can take informed choices about what scheme to use and whether to keep using that scheme or switch to another.

This will be a great help in making employers to be better buyers, for as the OFT have commented.



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Pension PlayPen needs your digits.

old and new


Digital marketing is something we’re having to learn as we go along.

We’ve got to find 1,000,000 employers who don’t have a workplace pension and convince them of the importance of paying some attention to what their staff invest into.

So we need to be in the eyeballs of the people who take decisions for their staff and the OFT made it perfectly clear last year that they’ve got a bit of learning to do!


If you are worried that the second half of auto-enrolment staging will be characterised by gormless decision making, you will want to help employers become a little bit more savvy. As I’m sure you’re aware, is about engaging, educating and empowering employers to get it right!

So here are three initiatives we’ve started to get to those  1m employers

1. We’re showcased this week in the Guardian , having been shortlisted  for their marketing and PR excellence award. Marketing and PR Excellence 2014: Pension PlayPen Ltd

2. We’re one of 100 start-ups off to Boot Camp for the Pitch 100 awards. This is one you can get involved with by clicking and voting for Pension PlayPen.

3. And importantl8y, we are sponsoring This is there Nobody gets left behind initiative which reaches out to the accountants and finance people of the missing 1m. Check the campaign out here

Social media is about sharing and helping each other out. Whether you are reading this as an employer about to stage, or an accountant or financial advisor, we need your help!

Please like , tweet and retweet what we are doing. We notice every interaction and will try to thank you in kind.

Finally, please take the time to register at

We want you to enjoy the wonder of our site!

Get your digits moving and your eyeballs in gear!

workplace advice




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I’m not trying to be disruptive but….


I’m really touched by Mark Pearson bothering to write a testimonial for Pension PlayPen.

In case you missed it – here it is!

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

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

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

Who is Mark Pearson? He’s EVP  of Monitise Content which is the parent to

At 34 he’s built a business and sold it to Monitise for a sum adjacent to £55m.

Not bad for someone who was working in a Gordon Ramsey kitchen eight years ago.

And of course he’s very annoying, he annoyed everyone when running and selling Iphone 4s for £99 –especially as he didn’t have (m)any to sell.

We’ve all screwed up – but it’s how you deal with screw-ups.

In short- he’s the real deal and I’m not ashamed to bask in his reflective glory for a couple of days.

This morning, I’ve been speaking with one of Britain’s premier communications companies who like the idea of getting into bed with a nasty disruptive upstart like Pension PlayPen.

We share one thing in common, a wish to do a little better for Britain’s 1.2m SMEs and Micros than the pension industry and British Telecom have done so far.

If we left, BT, British Aiways, IBM and the British High Street to get on with it, we’d have no Talk Talk, Virgin , Apple and myvouchercodes. And if we left the ABI and NAPF to preside over British pensions we’d have no

Pension PlayPen.

We share one thing in common, a wish to do a little better for Britain’s 1.2m SMEs and Micros than the pension industry and British Telecom have done so far.

If we left, BT, British Aiways, IBM and the British High Street to get on with it, we’d have no Talk Talk, Virgin , Apple and myvouchercodes. And if we left the ABI and NAPF to preside over British pensions we’d have no

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CDC: Why would anyone do that?

henry tapper:

I can’t disagree with any of this Jonathan. I guess the proof of the pudding will be in the eating and when trustees see CDC working, they will adopt.

The issue is how CDC will get seeded without employer or trustee support and the answer is that financial institutions are waking up to their being able to pay more income under CDC than under an annuity and equivalent income as expected from drawdown with greater certainty. A lot of this is simply down to scale, but it’s also down to not needing to reserve and not being so restricted on the investment side relative to guaranteed benefits.

My guess is that CDC will take a couple of years to become mainstream but when it does- it is the natural place to invest accumulated DC savings.

Originally posted on Jonathan Reynolds:

It’s official! On my return from the NAPF Conference I told my wife that I was indeed a fully fledged ‘pensions nerd’. My ‘fledging’ was conclusive and its confirmation unequivocal; I had really really enjoyed the annual conference.

Now, you may think that that is not entirely conclusive proof. After all, we did have a captivating and entertaining session from Sir Bob Geldof who, despite everything we were told as a child, made it his personal mission to show us that swearing is in fact ‘big and clever’. We also had another entertaining and enjoyable ‘performance’ from Steve Webb, a great Gala Dinner and a fun session with Dr. Steve Peters to name some selected highlights. Add to that some interesting stream sessions over the three days and an enticing array of entertainment and refreshments on the stands and you have a pretty decent recipe for success. The proof of…

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Nobody’s scared!

my arse 2

“Velvet glove- iron fist -my arse!”

As one Liverpudlian patriarch might have put it. I very much doubt that many employers see the doling out of three £400 penalty notices by the Pension Regulator as a wake-up call to get auto-enrolling.

And that’s not a criticism of the Regulator or the number or level of fines, it’s a criticism of financial journalists and commentators who are trying to leverage every bit of marketing value they can out of latest enforcement statement. To wit – this article in FTadviser .one of many that menace SMEs with the usual garbage about tsunamis, crunches and such-like Cassandran outpourings!

Auto-enrolment will not be a success because employers are afraid not to- it will succeed because employees want to be in and employers care that they’re “in” decent schemes that give them a half-decent chance of getting some freedom in retirement.

Charles Counsel, Neil Esslemont and Andrew Fleming (and others) are playing an absolute blinder creating positive awareness for auto-enrolment. I won’t berate them or their colleagues in the DC team for the lacklustre promotion of the pensions that we enrol into (well only this much!) as the reason fines aren’t being dished out like parking tickets is that the message is getting through.

So come on financial journalists and come off it “auto-enrolment experts”, the levels of non-compliance, though higher than the four fines and 163 compliance notices suggest, is not a pandemic of wilful corporate disobedience.

To return to the scouse vernacular

Calm down- calm down!

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“I don’t need a new house – I need an extension!”



I have sympathy with the pension managers of large employers who are being expected to adopt the pension reforms. It is not their job to make Government policies work, rather it is Government’s job to make pensions work- especially for employers who are expected to stump up the money to manage and run staff schemes.

To be fair to Steve Webb, the DWP and the Friends of CDC, they are not expecting any employer to adopt collective DC plans either as an alternative to existing DB or a replacement for current DC.

DB isn’t working because it imposes impossible obligations on corporates to guarantee uncertain  liabilities but CDC is not to be an exit route.

DC is working, at least as a means of saving money efficiently, and , as 90% of us choose whatever default we are fed, DC in the accumulation is closing in on being collective.

Where the problem arises is at the point of retirement. Until recently we had a broken system of annuities but- from the employer’s point of view – it was a system that wasn’t hard. At worst employers had a moral obligation to point staff towards the open market option and perhaps invest in a few at retirement seminars- the rest was someone else’s problem.

But when George Osborne changed the tax rules so that people could – and had to- make a choice about how they spent their retirement savings, employers were in an awkward spot. With millions-sometimes billions invested in the retirement plans of their staff, employers can no longer ignore what happens next.

Some large employers have been very strident about their position, Lesley Williams o Whitbread (who is also head of the NAPF’s DC committee) has explicitly distanced her employer from any obligation for the outcomes of at retirement decision making.

Speaking at a PPI seminar last week, Tim Banks stated that there was absolutely no appetite among employers to take responsibility for the management of the financial affairs of those retiring from their employment (other than of course the DB pensioners).


I was trying to explain this to a group of European investors yesterday morning. They were looking at the opportunities to provide pension freedom to large groups of British people and were trying to work out what the link to the employer was , when people had left employment.

I struggled to find an analogy and eventually blurted out.

“If I was your builder and you asked me for a way to house my elderly relatives, I might suggest an extension (granny flat) or what the Scots call a Dower House- an outbuilding where the in-laws and out-laws could be close but not too close.

I would not suggest you demolished your own house to start again!”

Those who argue that CDC is more effecient seem to be arguing that the way to achieve effeciencies – which are principally to be earned around those in retirement, is to knock down the DC house.

Unsurprisingly they are getting short shrift – people don’t want to rip out all the hard work of the past 25 years to satisfy some clever actuary any more than people will pull down their house to make a perfect living space for the old folks.

But that is not an argument against CDC or collective drawdown (along the lines of Alliance Bernstein’s Retirement Bridge). I see Retirement Bridge as a step along the way to Collective DC, it lacking the ambition to pool mortality and dispense with individually managed accounts,

CDC is to me an “at retirement product” which is like the Granny Flat or the Dower House. It can either be an “extension” to the DC House, or something built in an adjacent premises to which an employer can direct retiring staff.

Frankly the employer need do no more than establish that the signposted scheme is (and continues to be fit for purpose). Some employers will want to take some ownership of the signposted product- perhaps supplying trustees or requesting some branding (as employers do with football grounds) but it seems unlikely that many employers are going to want to get more involved than that.

Since most employers do not have sufficient retirees to make a collective scheme efficient, these schemes will probably be open to wider groups. The constituency of the  group is up to the scheme manager but might include alumnis of colleges, former workers in certain professions, past and present members of unions or simply people who trust a certain brand.

I’ve long thought that the most trusted brand in financial services is and, Martin, if you’re reading this – give me a call!



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Block and delete – the only way to deal with “FROZEN PENSION. CO .UK

Frozen Pension

Today I took the unusual step (for me) of blocking and deleting John Adam of IM Consultants who trades through and wants to unlock your pension to invest it in Brazilian rainforests and other investment scams.

The disclaimer on the website is a masterpiece of confusion that makes a mockery of honest advisers and their attempts to restore confidence in pensions is a trading style of I M Consultants Ltd a company registered in England and Wales (Co.08155708). Registered company address: Kemp House, 152 City Road, London, EC1V 2NX. Please be aware that I M Consultants Ltd are not regulated by the FCA and do not provide financial or tax advice. I M Consultants Ltd act as an introducer to companies who offer Financial Advice. Companies we use are authorised and regulated by the Financial Conduct Authority. I M Consultants Ltd is not authorised to give advice and we are not liable for any financial advice provided by or obtained through a third party. The information published by I M Consultants Ltd is for information purposes only. A SIPP or SSAS is a type of pension for people comfortable making their own investment decisions about their retirement. Investments go down in value as well as up so you could get back less than you invest. Currently the rules allow you to access your pension benefits at age 55. Taking benefits earlier than your normal retirement age will almost certainly reduce your pension income in retirement and is only suitable for a limited number of people and circumstances. This should not be seen as an easy option for raising cash.

The website is full of misinformation , on SIPPs, on transfer regulations and on the investment options being offered.

As well as investments in Brazilian rain forests, there are opportunities to destroy your wealth investing in “Legal loan accounts” and “Managed Forex accounts”.

That these guys are advertising themselves on Linked In in this way suggests that they think we will give them legitimacy.

Rest assured, Pension Play Pen does not give legitimacy to these scams and any other group owners or private individuals who come across this guy, his website or his non-regulated company should “block and delete” and send his profile and website details to the Pension Regulator and FCA.

It is not enough to call this stuff, someone else’s problem. We know damned well what these guys are up to. They are up to stealing people’s money and robbing them of a happy retirement. They can only be stopped if we all do our best to run them out of town.

We cannot rely on the Regulators to do this, we must be prepared to whistle blow and clean this place up. So please use social media as you can to make sure that crooks like John Adam do not get to people gullible enough to call his free numbers.

Frozen PensionFrozen Pension

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How much flexibility do DC savers want?


PPIThe PPI have taken research conducted by  Opinium on 1000 individuals aged over 40 actively saving into DC and come up with their own analysis.

The report suggests that in this group there is a high level of awareness of the new Pension Freedoms.

But the research is problematic as it is informing on a particular group of savers and while I don’t want to criticise the PPI- who can only work on the data that’s presented to them-I think the conclusions of the report should not be relied upon as an indication of the nation’s readiness for April 2015.

The PPI have been working on an “odd”dataset.

What is odd is that the sample claim to have average £150,000 (men) and £100,000(women) in pension savings. This is against an average pot of £36,000 used to purchase an annuity last year.

Alliance Bernstein tell me that the 1000 individuals were part of “client control groups” . This may  be as interesting as the PPI research as it seems that people who have the sophisticated Alliance Bernstein target date funds have a lot more DC money than the ordinary Joe.

My guess is that there are many DC constituencies out there

  1. DB occupational scheme members with DC pots
  2. DC occupational scheme members  (and those with sponsored DC plans)
  3. People who have DC from their own endeavours
  4. People who have no DC or simply a contracted out pot.

It sounds to me that Alliance Bernstein’s pollsters are tapping  into the more DC affluent groups  (1-2) (Alliance Bernstein clients).

There is a radical difference between the investment strategies employed by sophisticated workplace schemes and those adopted by most private savers (and those in old-fashioned unsophisticated workplace schemes).

The PPI research suggests where the group analysed are life styling or target dating. This suggests that they are in schemes where a default has been chosen relatively recently and probably by an employer under advice. Alliance Bernstein clients are all in “recently established or reviewed schemes”. Alliance Bernstein has only been acquiring DC clients in the UK for the last ten years

Other research suggests that the generality of the population are not in lifestyle or target date funds.

Recent research from Annuity Direct suggests that  people reach retirement with a variety of DC strategies- some self directed and some default, considerably less of this money has been “de-risked” some 70% of the money Annuity Direct cash out is still in equities. Most of this money is coming from groups (3-4) , those who saved into personal pensions on their own account, not having an employer to help them with a contribution or an investment strategy.

So the PPI group are different not just in the size of pot, but in the sophistication of the advice surrounding the investment of their pension savings.

What seems common across all groups is that most people are ‘defaulters’

Even analysing their rarefied group of pension savers with decent sized pots, the PPI state that

“As with the accumulation stage – there will be a substantial group of individuals who do not wish to engage in decision-making around their retirement provision”.

I would suggest that even among the more sophisticated group, there is a substantial majority of savers who do not want to take responsibility for the investment of their retirement funds.

For these people the PPI recommend that

“pension savings are likely to be invested in a default strategy and it is important that it is sufficiently flexible to meet their needs”.

The difficulty is not with creating such a strategy, it is of course precisely the strategy that we set out with in the 1980s (and which many small pots are still invested in).

The question is why should we be wanting to create more than one default! Why is there not a collective Default covering huge number of schemes that delivers results though simplifying things?

For though we have created a DC world designed to deal with certainty, an expensive apparatus of choice that allows everyone to go their own way – this apparatus is for many – redundant.

It seems that many (in not most) people do not value this choice, they simply want a default that does all things to all men (and women). They also want help on what is the optimum level of certainty for the average person.

The real choice facing people from 2015 onwards is between flexibility and certainty.

Ultimately people, if they make a choice, are not going to be deciding on whether to invest in equities, bonds or even Lamborghinis but between the different levels of certainty offered by annuities, collective schemes and individual drawdown.

I suspect (like the PPI) that most people who had no interest in taking investment decisions on the way up, will have no interest in taking investment decisions on the way down.

Where people have engaged in their pension saving was in the rate at which they contributed. I suspect that where most people will get engaged with their pensions “in decumulation” will be with the rate at which they spend their savings.

People need to understand the greater the flexibility, the more you take responsbility for your investment and spending, the greater the risk of money running out and the lower the certainty you can have in the future.

For these serial defaulters, the attraction of collective schemes will be in their capacity to take the  decision about certainty  away from them. CDC schemes may become the accepted compromised between absolute certainty (annuities) and total freedom (flexible drawdown). In practice , many people may mix and match.

If you can choose how much of your pension savings you want invested in a CDC scheme yielding a 6% increasing income for life (let us say) then you can mix and match between other options which may give greater or lesser degrees of certainty around the “spendability” of the retirement pot.

The infinite spending flexibility of a pension bank account is at one extreme of the certainty spectrum- it provides certainty to meet short-term needs with great uncertainty down the line, the annuity is at the other end of the same spectrum.

And if you give the average person the choice of where they want to be, they will choose somewhere around the middle – proving the old adage that most solutions arise from how you frame the question.

If my analysis is right, I think that we can draw three conclusions from the PPI research

  1. There are no certainties around retirement (other than uncertainty)
  2. When faced with an impossible choice- people will look for default solutions
  3. Default solutions suggest collective approaches will win out in time over advised solutions (at least for the defaulters).
  4. Over time the default accumulation glide-path will settle on the default decumulation option
  5. The default decumulation option will not be annuities nor spend-spend-spend but something in the middle.

Point three needs a lot of qualification since there will be a substantial minority by number (and a more substantial group by assets) who will want to adopt bespoke investment strategies (or at least have them drawn up for them by advisers).

It would seem from the PPI research conducted so far that rather than concentrating on “exploring the complexity of decision making for savers in DC pensions..” it could do its next work  exploring the trade-offs between flexibility and certainty and how they play with the general public.



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How do I buy financial advice?


At two recent events – (the Corporate Adviser Summit and the Investment Network), Advisors have told me that they choose clients not by “minimum fee” but by “minimum funds”. This sets my alarm bell ringing!

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

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

So what is the relevance of the funds I have at my disposal? Put another way,

“If I have no funds to manage, can I not get advice?”

What is more, it’s suggested to me that the fees I pay for advice will be based on the funds I have to be managed. Indeed I have been told by several advisers that the cost of any advice I was given will be offset against monies earned from funds I put under advice. The suggestion is that advice continues to be free so long as I put my funds with the adviser.

But I am not going to an adviser to get my funds managed, I am going for advice as to how I should financially organise my retirement.

This involves me thinking about how much I will have to work, how I should plan for extreme old age, what I should be doing about my property, inheritance, the advisability of buying extra state pension and when I should be doing all this.

The question of who and how I should have my DC monies managed may fall out of this conversation, but it is not the conversation I want to pay for.


The impression I get from talking to advisers is that the major decision – the point of me, a bloke nearing 55 wanting to talk about pensions – is to find an alternative to an annuity. The alternative to be promoted will be the Advisor’s proprietary solution which is likely to involve a basis point charge over the assets under management. This is what is now called “vertically integrated advice” which is a posh term for commission.

And so long as this is the primary focus of the Advisor, all other options are likely to be discounted.

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

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


Will people understand?

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

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

The new customers that the Guidance Guarantee will provide may not be sophisticated and may not understand that by entering into a contract where the adviser takes a charge on assets for advice just what this means. This advice is not free and if advisors free-load on advisory assets in future, it will be picked up.

The financial press are watching and the cavalier practices of the past will be quickly exposed. Customers who claim to be fooled into advisory agreements are now well informed on their rights and will have the full-force of the consumerists behind them if they can prove they are not being treated fairly.


Why this matters so much

The guaranteed of guidance on the new pension freedoms, is not a guarantee of advice. Strictly speaking guidance cannot tell you what to do, it can only point you in the right direction and very often that will be in the direction of a regulated “financial adviser”.

Signposting to a financial adviser who turns out to be something else- will not go down well.

MAS are organising the establishment and maintenance of a Directory of Advisors. Let’s hope that the Directory contains advisers who are clear about how they charge and what they are charging for.

If we cannot get clarity on all this, I fear that we will be back in the muddle the Retail Distribution Review was supposed to sort out.

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