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 http://www.moneysavingexpert.com 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 http://www.pensionplaypen.com (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 http://www.pensionplaypen.com 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 http://www.pensionplaypen.com again, it’s changed – we hope it’s improved- we’d like your feedback!

Oh and click http://www.pensioinplaypen.com/register 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 I 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   http://lifetime.faife.co.uk/ 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 http://lifetime.faife.co.uk/ 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 https://www.gov.uk/state-pension-statement

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  https://www.gov.uk/state-pension-topup 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,


This post first appeared in http://www.pensionplaypen.com/top-thinking

Posted in actuaries, advice gap, Australia, auto-enrolment, pension playpen, pensions | Tagged , , , , , , , , , , , , , , , | Leave a comment

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 n.com 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 http://www.pensionplaypen.com 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 .co.uk- London

peter.shellswell@firstactuarial.co.uk – Basingstoke

Keith.williams@firstactuarial.co.uk – Basingstoke

James.Smith@firstactuarial.co.uk – Tonbridge

Chris.martin@firstactuarial.co.uk – Tonbridge

Mark.riches@firstactuarial.co.uk – Leeds

David.Joy@firstactuarial.co.uk – Leeds

Michael.Vickerstaff@firstactuarial.co.uk – Leeds

Alan.Smith@firstactuarial.co.uk- Peterborough

Hilary.Salt@firstactuarial.co.uk 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.


this article first appeared in http://www.pensionplaypen.com

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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.


This blog was first published on http://www.pensionplaypen.com/


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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.



Posted in accountants, advice gap, dc pensions, FCA | Tagged , , , | Leave a comment

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, http://www.pensionplaypen.com 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 http://www.thepitchuk.com/shortlist and voting for Pension PlayPen.

3. And importantl8y, we are sponsoring http://www.accountancyweb.com/auto-enrolment 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 http://www.accountingweb.co.uk/autoenrolment

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   http://www.pensionplaypen.com/register

We want you to enjoy the wonder of our site!

Get your digits moving and your eyeballs in gear!

workplace advice




This article first appeared in http://www.pensionplaypen.com



Posted in Facebook, Linkedin, pension playpen, pensions, Personality, twitter | Tagged , , , , , , , , , , , , , , , , , | Leave a comment

Good pensions need good bosses!

good pensions .

My friend Steve Bee has produced a marvellous cartoon this morning.

The need to save between 15 and 20% of lifetime earnings hasn’t changed.

The numbers being crunched to come up with the 17.5% recommended lifetime contribution rate should be about the same today. Provided -that is- people accept that few starting saving as a 20 year old, will be able to stop working till they are 70!

Our perception of retirement in 2064 will be as different from todays as ours is from those retiring in 1964 but the fundamental need to save between 15 -20% of lifetime incomes into a pension is likely to remain the same!

But there is a new audience who see saving  differently

Two things have changed since the 50s and 60s, Retirement Annuity Contracts were designed for a professional elite as their alternative to a DB scheme, now we’re all dependent on them -was there ever an expectation that ordinary people would be able to fund their own pensions to DB replacement ratios?

Secondly, nobody in the 50s and 60s could have anticipated the impact of wider house ownership would have on people’s view of security in retirement. The “my house is my pension” is now baked into our culture (even if it’s hard to buy a sausage with a brick).

And we haven’t yet worked this out!

The communication message has become harder as we widen the audience and find people’s view of retirement income changing. Personally I think it is unrealistic to expect people on lower incomes to set aside 17.5% + of income but I think that we need to get back to basics and not allow current AE contribution rates to be considered “enough”.

If we believe that workplace pensions are capable of offering a meaningful enhancement to the Basic State Pension for all UK workers, we must make them as structurally sound as befits that purpose. The reforms currently going through the Houses of Parliament are designed to ensure that is the case.

We must also put the employer at the heart of the process and try to include as many of the pseudo “self-employed” as workers of their actual employers and as such part of employer’s workplace pension schemes.

Ironically the idea of a works pension  with 15-20% contributions into a well organised and managed saving vehicle is pretty well the blueprint for the original DB pensions in the sixties. If we can decumulate what we have saved collectively, we will be pretty well back on track!

So I do believe that with the help of employers and regulators, ordinary people can get decent pensions for themselves.


But we have to tell it like it is!

Now we have got back to basics, we must – as Steve does – tell it like it is.

The British public have been subject to one deception after another- they have been let down by over-expensive personal pensions, by poor advice at retirement and by a regulatory system that has placed the distribution of pensions above their quality.

To have a good pension, it is not enough to be in a pension scheme, you have to be in a good  pension scheme with proper contribution levels.

That way you don’t have to have your house- and eat it!


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



One of the great words of the English language, fungibility means that something is replaceable.

What’s fungible and what’s not?

If I give you a tenner, that note is fungible with 10 £1 coins or two fivers.

If I am pregnant for 9 months, I produce a baby, but 9 ladies cannot be pregnant for one month and collectively produce a baby – pregnancy isn’t fungible.

As it impacts on the current debate about whether we deliver pensions singly or individually, the fungibility word is crucial.

If I put £1000 pounds into a collective DC scheme, there is £1000 pounds of pension benefits in the system which I can have back but which in the meantime can be used to pay others income in retirement. That money-converted into benefit is fungible

If I put £1000 into annuity, that annuity is mine and no-one else’s, it is not exchangeable and I can’t have my money back, no one else gets the benefit if I give it up- an annuity is non fungible.

This idea of fungibility is something that hard line individualists do not acknowledge. For them collectives are always at risk of losing their fungibilty and becoming Ponzi schemes where future benefits are guaranteed by the expectation of future income from future contributors.

If you deny the existence of fungibility you begin to doubt some central pillars of capitalism. The principle of equity that underlines the shares we purchase, is that someone in the future is prepared to exchange your paper for cash on the expectation that the paper will give a future income stream and a right on the capital of the company that gives it. You are taking a bet on the fungibility of the asset.

So instead you look for unique items that have a guaranteed value to you and fulfil your purpose- to the exclusion of anyone else’s. A single life annuity is a perfect example, beyond your lifetime it has no valuable, it is perfectly unfungible.

This is why you will always hear objections against collective schemes couched  in terms of property rights.

It is perfectly natural for people to worry about these things. We do not easily trust the financial system to manage our rights collectively, we have a belief that what is ours is ours and that a bird in our hand is worth two in a collective bush.

But this isn’t necessarily helpful. If I go to Zipcar, I can expect to pick up a car on the street that will be the same model and do the same thing as another Zipcar, but it is not the same Zipcar as the last one because someone else has picked up the car I left behind ,driven it and left it in another place. I am trusting that my Zipcar will be fungible with every other Zipcar, I get the collective benefit of only having to walk a couple of blocks to pick my car up.

So I’m exchanging the trust I have in owning my car (which is absolute) for a trust in a system of collective ownership (which is dependent on everyone else doing the right thing).

There are millions of examples everyday of our trusting others to do the right thing- just analyse two minutes at the wheel of your car to realise how much we rely on other people -pedestrians , car-drivers and traffic regulators.

Because no man is an island, there is fungibility in our society but we all accept greater or lower degrees of fungibility. Someone like my friend Hilary Salt, celebrates completing her tax return as an act of collective endeavour, her contribution to society. At the other extreme, John Ralfe begrudges participating in any collective endeavour that does not guarantee him a prescribed entitlement. In between are most of the rest of us.

I didn’t trust Zipcar till a friend of mine told me how well it works, now I do. Collectives, when they work, work very well.

“Achieve by Unity” is the motto of my football club and I do believe that collectively we can do more than we can as individuals. That is because of the inherent advantages of fungibility which allows the free movement of money from one person to another without the interventions that clog up the financial system.

The most efficient pension systems, those that work on a pay as you go basis, are also the most fungible. The basic state pension is super-efficient because of its fungiblity- a function of it being collectively acceptable.

The least efficient systems are those that depend on being super bespoke. The insurance companies are currently reviewing their portfolios of legacy pensions set up in the last thirty years and trying to justify why they haven’t and won’t deliver. These have no fungibility and have failed because every moving part of the system that supports them needs to be individually oiled with policyholder cash.

CDC aspires to the efficiency of the basic state pension while acknowledging that without some individual property rights, trust will be stretched too far and fail.

It is – in the grand scheme of things- merely a rebalancing of the system which has tipped too far one way and has to be corrected.

I do not deny the rights of John Ralfe and those like him not to use CDC and enjoy its fungibilty, nor should he deny me my right to help build an alternative more fungible system for those who are not like him.

Individualists see collectivism as a threat, they must learn to enjoy fungibility!

This post was first published in http://www.pensionplaypen.com/top-thinking

fungible 2



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Will CDC be available to everyone with a DC pot – or just a lucky few?


A snag has emerged in the Drafting of the Pension Schemes Bill (that will introduce Defined Ambition and with it CDC).

It’s one of those little things that seems easy to fix but which has potentially huge consequences, a bit like driving a nail into the bit of wall that may or may not have the water pipe behind it!

It would seem that the drafting of the Bill assumes that CDC schemes will be “occupational”, that means that they will be connected with your occupation and by extension your place of work.

If you could only join a CDC scheme if your bosses decided to set one up (or convert their DC scheme), then I doubt many of us would ever have the opportunity of using one.

I had assumed that somewhere in the Pension Schemes Bill would be a little clause that allowed “non-connected employees” to transfer in benefits to the CDC scheme “if the scheme rules allowed”.

Which would make it worthwhile for social entrepreneurs to set up schemes to accept transfers of pension pots that people had built up over their career. My vision for CDC is focused on it being a receptacle for DC benefits that otherwise would have been annuitized, cashed out or transferred to a drawdown arrangement.

But according to some learned friends at a seminar I attended last night, no such provision exists and I get the distinct feeling that, so far, no one has stopped to think of the retail implications for CDC within the drafting of primary legislation.

The fundamental principle behind this is that occupational schemes are sponsored by employers and those sponsors need to be protected from having to subsidise the pensions of any Tom Dick or Sally who walks in off the street.

CDC is different, there are no obligations on an employer, indeed I would argue that an employer is pretty well irrelevant to CDC (other than to pay some money into the pot on behalf of its employees). Could you set a CDC scheme up without a sponsoring employer? Logically yes- but legally no.


So who is CDC for?

I have said before that Steve Webb needs to be clearer about his intentions for CDC. It is one thing to adopt an “if we build it- we will come” approach, another to get support for the project from both the Commons and the House of Lords.

The original intention for DA was to provide employers with a halfway house between DB and DC, but DA has really been taken over by CDC which is the big deal in the Netherlands, Canada, the US and certain Nordic countries.

And the pensions argument has moved on from encouraging a handful of large employers to continue offer something a little better than DC to finding a meaningful replacement to annuities as the way we spend our DC pots.

In my view CDC is the mass means of decumulating just as DC workplace pensions are the mass means of accumulating. These are our defaults for the future and CDC is essential to the success of the budgetary changes now making their way into legislation.

If legislation allows people to convert DC pots to CDC (and I’m pretty sure it doesn’t so far, then there is a ready market of some 18m customers for CDC outside of the few large employers who might sponsor their own CDC scheme.

There is of course a second issue over whether people, once they are allowed to and have the Schemes to invest into- will make voluntary transfers.

Individuals will choose to transfer their DC pots to CDC provided…

  1. CDC is presented as a packaged alternative to CDC that takes the individual investment decisions out of both the accumulation and decumulation of the pot.
  2. That the risks of the Collective approach are properly explained- most importantly the risks of retirement income stalling or actually reducing when times are hard.
  3. That people are able to transfer into a CDC scheme only those amounts they want to provide them with additional income (e.g. they don’t sacrifice their freedoms to drawdown or annuitise part of their DC savings).

To me , CDC becomes an essential choice for people taking Guidance (albeit after 2016 when the first CDC schemes will come off the production line).

The simplicity of the CDC approach which offers predictable outcomes from a collectively managed scheme could in time become the default option for those crystallising DC benefits.

So to restrict their use to employers who have converted to CDC would be an enormous shame.

We can’t rely on large employers to make CDC happen

I heard again last night from large employers who said quite categorically they did not feel any responsibility for the choices offered to their staff after they had crystallised benefits.

This being the case, then a reliance on employers to make CDC happen is misguided. CDC will happen because people need a better way to get their DC pots paid to them, and if they are denied access to CDC, then people like me will be more than a little upset.

Worse than that, political opponents to CDC will be able to point to CDC as an elitist approach that has no value to most people and is not worth the time and trouble that will be spent on it. The Bill will die in the wash-up , if this view prevails.

CDC is too important to simply be debated in the halls of the actuaries. It needs to be promoted nationally for what it is -the natural alternative to annuities and income drawdown.


What needs to happen now?

Those doing the drafting of the Pension Schemes Bill (the one with DA and CDC in it) , must  amend its drafting so that CDC schemes can accept transfers in (without losing their right to be considered occupational).

A precedent was set in Pensions Act 2008 when self-employed people were allowed to become a part of NEST, extending that precedent to allow anyone with DC benefits to transfer them to a CDC scheme is a logical extension.

Secondly, and here I confess not to have looked for water pipes behind the wall, I would like the Bill  to allow CDC schemes to be set up , without any sponsoring employer at all. Such schemes would simply exist to pay pensions to those who wished to convert their DC pots to CDC and could thus be classed as “pure retail” arrangements.

No doubt this final point will cause a degree of regulatory confusion since a retail product , overseen by the Pensions Regulator, or an occupational scheme overseen by the FCA has yet to be created. But we are at a point when tPR and FCA need to work as one , we have aspects of the Pension Schemes Bill which relate to the Guidance Guarantee and the distinctions between retail and institutional are becoming ever less defined.

Thirdly, we need people who read and agree with what I am saying- to take some action now. The Bill is currently being amended at the DWP and we live in an era of Open Government where our voices can be heard.

If you are interested enough, drop me a line ( henry.h.tapper@firstactuarial.co.uk) and I will collate all comments as part of our on-going dialogue with the DWP.


This article first appeared in http://www.pensionplaypen.com


Posted in advice gap, CDC, DWP, now | Tagged , , , , , , , , , , , , , | 2 Comments

The NHS may hold the keys to Guidance



I’m indebted to KPMG research for this excellent piece of research.

If you didn’t click the link, here is the text of an article entitled “Can patients get the information they need”.

Patients need information that is often very different from the information that doctors think they need.

Our research into patient groups across the world consistently showed that, what patients felt was crucial information was ignored by clinicians. In fact for some patients groups the biggest gap between what patients needed and what they got was information.

If patients don’t receive what they need to know, they will not be able to be as active in their own care as we need them to be.

Often the clinical explanation is fine but it rarely helps to alleviate the fear and anxiety that comes with a diagnosis.

Information for patients that they can use improves clinical effectiveness, safety and patient experience. It needs to adhere to quality standards, be user-tested, and to be useful it needs to be co-designed and co-produced. Information must also be designed to meet different levels of health literacy.

It is now a basic requirement for organizations to have ways of communicating online and through mobile phone technology. Using clinically accredited apps to support chronic conditions and individual episodes of care, such as maternity care is the next step.

To make full use of this, it will be important to improve health literacy and activation – there is some evidence about how to do this.

I wrote earlier this week about the parallels between health screening and the wealth check that the Guidance guaranteed by impending legislation.

To spell it out

  1. We need to provide information in the Guidance session that is what people actually need, not what certain financial “doctors”, think they need. We need RESEARCH AND FEEDBACK
  2. The “biggest gap” between what many “at retirement” get and what they want is information. THE SESSIONS NEED TO ENGAGE AND INFORM
  3. Information we can “use”, which allows people to be as active in their financial well-being as they need to be. GUIDANCE NEEDS TO EMPOWER people to DIY
  4. Information needs to adhere to quality standards – WE NEED A TEMPLATE and RULES
  5. Information needs to be user tested- WE NEED PILOTS
  6. The Information needs to be CO-DESIGNED and CO-PRODUCED with users outside the financial services industry.
  7. The information must be designed (and delivered) to meet the levels of financial literacy of EACH PERSON guided ( which may be a judgement call from the Guide)
  8. The information must be available on the SCREEN OF A PHONE and at the TOUCH of an APP.
  9. This information is needed on a “CHRONIC” basis (on-going) as well as at the “ACUTE” moment when the big initial decisions are taken.
  10. There is EXTERNAL EVIDENCE of how to do this (and the NHS are pioneering in this respect).

My advice to TPAS and MAS is to get hold of the people in the NHS who are doing this research and learn from them. The financial services industry has more to learn from healthcare than it might care to admit!


 This post first appeared in http://www.pensionplaypen.com/top-thinking
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Sign up for The First Actuarial Monkey League -2014 !



You can save yourself reading 644 words of Pension Plowman pontification and sign up for the Monkey League here.

Or you can read the blog and take your decisions at the end.


Here’s why I’m promoting our Monkey League!

I love our Monkey League and so do about 150 of my colleagues and sundry devotees , many of whom have found pleasure -season long- from this  Simian challenge.

We are poor mis-guided fools who believe every season we know more than the monkeys/bookies/markets.

If you , like some of us, fancy yourself- or if you – like most of us- like a good laugh at ourselves and our mates – read on!

Here’s how it works!

The Monkey League asks you to test your football knowledge by beating the bookies who predict the winners and losers in each of our four major football leagues.

All you need to do is pick 2 “good” teams and 2 “bad” teams from each of the four English divisions. Each team is handicapped by the Billy Hill odds pertaining at the start of the season.

For example;-

taps picks


So betting on the trophy teams to do well is no more likely to succeed than betting on the likes of Yeovil Town to do badly. In fact betting on Yeovil Town last season delivered average results even though they finished plum last in the Championship.

All the handicap scores are listed on the entry form as are the teccy bits about points deductions as and when teams go bust.( In fact betting on teams going bust is one way of winning!)


Yeovil Town


You don’t get to change your mind so you don’t need to do anything  throughout the season except watch aghast or thrilled as you teams let you down or do you proud.


Here’s the point!

No matter how good you think you are, you will be humbled. There are 1000 monkeys out there, each with random selections generated by their computer like minds. For you to beat them you need skill or luck.

Each year, those who finish in the top ten are filled with pride and the following year that pride is shown as hubris as they tumble into the lower reaches of the league being trounced by anonymous monkeys!

Nobody has ever been able to do it year in, year out!

So all that skill turns out to be luck!


A comparison we would never make!

I once entered a competition (and won it) – with my definition of “alpha”.

My answer was that

“alpha’s what’s left over when your luck runs out”

and the amount of alpha on display from the 150 monkey thrapping contestants suggests that nobody’s got any alpha at all.

Now of course “alpha” is usually applied to stock-pickers and fund-pickers who are able to choose a fund manager who regularly outperforms its peers- beats at least 750 out of the 1000 monkeys and is therefore regularly top-quartile.

But we would never draw a parallel between expert footy pundits and expert stock and fund pickers.

pension monkey

Stock and fund pickers would never advertise their short-term prowess at beating the markets – would they?

Stock and fund pickers would never keep schtum when last year’s “best idea” turned into this year’s dog – would they?

Stock and fund pickers would never accept that Billy Hill and the boys who make sports markets are able to cream it by taking a little spread on everybody’s bet – would they?

If we accepted  that they would, we would have no choice but to poke our investment consultants in the ribs, and tickle their feet and sing them silly songs.

three wise monkeys

Which we would never do!

The best thing about the monkey league- is it is not played with money. Betting on winners and losers is a mug’s game- though we will never learn!

So to enjoy a happy season, avoid the bookies, put your bets on the Monkey League and if you are going to invest in any stock- bet on the bookies winning!

 So here’s how to enter

The competition is free to enter, and there is a bottle of champagne for the winner.

The whole thing is organised by our actuaries who find the completion of the macros that drive the algorithms, so satisfying that they delight in the delivery of weekly updates to you!

You will also receive humorous commentary and quizzes , usually with a statistical bent, allowing you to further waste valuable working time!

 To enter – you don’t have to work for First Actuarial- and you don’t have to be a monkey (though it helps).

If you would like to enter full details can be found here.













Posted in Financial Conduct Authority, Financial Education, First Actuarial, monkey league, pensions | Tagged , , , , , , , , , , , , , , | Leave a comment

If we can provide health screening – we can provide pension guidance



Organising the Guidance Guarantee is a daunting task but it is no more daunting than many public welfare initiatives.

Each year the NHS screens and advises millions of us on a variety of health issues. From STDs to Breast Cancer, we have become used to public awareness campaigns that offer us  everything from broadcast reminders to face to face meetings with a recognised practitioner.

The Guidance sessions offered to those at their selected retirement age will be fulfilling the same function  as the  screenings we are used to. While for the majority of us , these sessions will be informative and part of a process we control, for a few, guidance will require an intervention from a specialist – typically a regulated adviser.

KPMG published an excellent blog recently asking

“can patients get and use the information they need”

Reading this , health and wealth guidance could be interchangeable.

Patients need information that is often very different from the information that doctors think they need.

Our research into patient groups across the world consistently showed that, what patients felt was crucial information was ignored by clinicians. In fact for some patients groups the biggest gap between what patients needed and what they got was information.

If patients don’t receive what they need to know, they will not be able to be as active in their own care as we need them to be.

Often the clinical explanation is fine but it rarely helps to alleviate the fear and anxiety that comes with a diagnosis.

Information for patients that they can use improves clinical effectiveness, safety and patient experience. It needs to adhere to quality standards, be user-tested, and to be useful it needs to be co-designed and co-produced. Information must also be designed to meet different levels of health literacy.

It is now a basic requirement for organizations to have ways of communicating online and through mobile phone technology. Using clinically accredited apps to support chronic conditions and individual episodes of care, such as maternity care is the next step.

It is absolutely right to put the process in the hands of the independent agencies, MAS and TPAs. I have great respect for drugs firms but I would not trust them to advise me on my medical needs, I have great respect for insurers but they don’t offer me a view of my options-merely the options that suit them.

I have confidence that just as the NHS provides me with the superstructure under which my health needs are delivered, the delivery may be from NHS staff or from sub-contractors, managed by the NHS.

I am not concerned about the structure of the delivery, I am concerned that it delivers to my needs. The more I can do online, the better for me- I am not happy sitting around in waiting rooms. But I am glad that drop in centres and A and E departments are there for me if I feel the need.

A lot of people say that we cannot recreate through TPAS , MAS, the Citizens Advice Bureaux and Age UK the support mechanism for 3-400,000 people retiring each year.

If we had adopted that attitude when we established the NHS, we would have a healthcare system as dislocated and un inclusive as n the USA. It is because we rise to the national challenges we set ourselves that we progress.

So let’s put aside the prejudices we may bring with us. I know that many IFAs resent MAS for the fees they pay to what they consider a wasteful rival. I know many regard TPAS as a tin-pot chat room for pension do-gooders, I’ve heard the jibes about CAB and the general scorn poured upon the concept of the Guidance Guarantee.

But dissing the project misses one important point – the Guidance Guarantee is the opportunity we have to restore people’s confidence in the retirement process. I was sceptical about the Olympics and was proved wrong, I was equally sceptical about auto-enrolment and I am sceptical about the Guidance Guarantee.

But I loved the Olympics, am loving the way we are steering auto-enrolment forward and am determined that the Guidance Guarantee and what follows it (the development of better in retirement products) will work!

This article first appeared in http://www.pensionplaypen.com


Posted in advice gap, happiness, Henry Tapper blog, Management, pensions | Tagged , , , , , , , , , , | Leave a comment

How retirement products evolve (and revolve).

industrial agrarian financial services


There are three drivers that shape the evolution of financial products – supply, demand and Government intervention.

Between the mid 80s and today Britain has seen a Financial Services Revolution that has been no less dramatic than the agrarian and industrial revolutions that preceded it.

British Financial Services has gone from family owned stockbrokers, local bank managers and bicycle clipped insurance agents to the behemoth that today drives the British economy. In terms of Pension Policy the approach has been to sit back and watch the market forces play out.

For insurers, asset managers and advisers, the last 30 years have been a great success. Success has been linked to light touch regulation and (to a degree) has come at the expense of the consumer. Government intervention, when it has come , has primarily been to sort the mess out; it’s been tactical rather than strategic and involved crisis management (pension mis-selling, Maxwell, Equitable Life and exorbitant product charges)

Auto-enrolment- the first strategic intervention in retirement savings

There has been no strategic intervention in the way we save for the future – that is until the last five years.

Putting aside Stakeholder Pensions which we can now see were “too little too late”, it wasn’t till the introduction of auto-enrolment, that Government made a concerted attempt to change long-term savings behaviour in the UK.

At the same time as tackling the savings-gap, it at last intervened to reform the ailing State Pension System which had been withering on the vine after successive cuts from 1987 onwards.

In the absence of any Government intervention for nearly twenty five years (the legislation permitting personal pensions was enacted in 1987), the balance between supply and demand needed some attention. Workplace pensions , as they had evolved, had fallen into such disrepute prior to the introduction of RDR in 2012 that the larger proportion of them will have to be re-written or wound up following the imposition of minimum standards by the DWP in 2015.

Abolition of commission  and minimum standards was a consequence of auto-enrolment

These changes to workplace pensions will not effect the fundamental dynamics of how we save for later life. We will continue to use equities to protect the long-term savings of workers from inflation and provide funds for old age in a form better suited to provide cash and income when needed.

Auto-enrolment was the game-changer, RDR and the Minimum Standards- followed.


The 2014 budget was a revolution for pensions

The intervention from the Treasury that will result in a revolution in financial products is the withdrawal of HMRCs restrictions on how the proceeds of approved pensions can be drawn. This will lead to a lot less money being invested in gilt-based annuities, a lot more money being invested in equity based drawdown products and more money being cashed out and spent or kept on deposit.

In terms of product evolution, this is going to be much more of an accelerator. In introducing the DWP reforms, Steve Webb explicitly referred to the need to re-balance the interests of consumers and the financial services industry.

Put bluntly , once auto-enrolment had solved the distribution issue, there was no reason for financial products to be loaded to pay for distribution. The DWP reforms are simply tidying up after RDR and AE and are as such evolutionary.

George Osborne’s Retirement Reforms are revolutionary, both in terms of their explosive impact and in the circularity implied by “revolution”. They  take us back to a time prior to the introduction of personal pensions when the savings vehicle paid the pension.

Looked at logically, the disruption  at what HMRC call the “crystallisation event” (the point when tax-free cash is taken ) has never been easy to explain. In an era when the lines between “retired” and “working” are blurred by 50 shades of semi-retirement, the all or nothing dichotomy of pre and post crystallisation simply didn’t make sense. Try predicting your “selected retirement age” and you’ll see what I mean.

Personal pensions always made sense in terms of the cash element, but what should we do with the 75% of the proceeds we couldn’t cash-out? Historically there was no such question, you saved with an insurer, the insurer paid you a pension (SEDA or RAP), you were in an occupational scheme, the scheme paid you a pension.

Individual  annuities were an interim measure to fill a vacuum.

We only saw mass-market for the individual annuity because firms like Allied Dunbar, Abbey Life and other unit-linked insurers would not offer pensions through with-profits deferred annuities.

What individual annuities replaced is set to make a return (the revolution)

Ironically, the with-profits deferred annuity looks like making a re-appearance  as part of the product revolution driven by the Osborne Budget reforms. It will reappear – hopefully- in rather better shape than it disappeared and will be re-named collective defined contribution (CDC).

A sweet irony of the Government’s legislative program is that the Bill that announces changes in pensions law to allow CDC to (re) emerge, also legislates for the introduction of the Guidance Guarantee.

The Guidance Guarantee is only an interim measure

Much has been made of Guidance as a means for individuals to make sense of their retirement options, but in the context of pensions evolution, I would accord it a very small (though important) role.

The Treasury sees the market for the Guidance being all those approaching retirement with a pension pot (rather than soleley a guaranteed pension from state or defined benefit scheme). There are some 18m of us, arriving in cohorts of between 3-400,000 a year and right now, these people have no obvious way to invest the proceeds of their retirement saving.

Annuities are unattractive, income drawdown expensive and unpredictable, cash is tax and investment inefficient.

After 25 years of financial products chasing limited consumer demand, we now have too much consumer demand for the financial products available.

Over the 25 years between 1987 and 2012, personal pensions evolved from looking like de-risked retirement annuity contracts to the alternative to a Trust-Based occupational DC scheme. In the process  it moved from being an advised product to being pretty well non-advised. Investment in GPPs is now pretty well always on a default or “self-select” basis.

The urgency of the revolution created by Osborne’s tax reforms means that 25 years worth of evolution of the personal pension will have to be squeezed into a couple of years product development.

Nature abhors a vacuum and consumers abhor no obvious answer to the question “what should I do”.

Annuities had been that answer but fell from grace. Advised income drawdown will never be that answer as it requires too much care and maintenance- it is not a default solution. Cash is not an answer for the majority of people who get that they need reliable  income more than invested capital in retirement.

So the Guidance is merely an interim product brought in till a new default evolves. The current array of choices requires guidance but when the new default arrives, the need for guidance will fall away.  Currently – with no alternative but annuities and cash- the need for advised products has never been greater, advisers should fill their boots as in the longer term future they will not have the rub of the green that they have now.

The interventions by the DWP, auto-enrolment and the introduction of minimum quality standards are their first meaningful reforms in the long-term savings market since A-Day in 1987, the interventions by the Treasury in the Budget 2014 mark the end of a 25 year experiment with individual annuities.


The creation of a new “in retirement” default product is inevitable

“Man is born free but everywhere is in chains” , claimed the philosopher, “mankind cannot stand too much freedom” said the poet TS Eliot. The reality of freedom and choice will not be personal financial empowerment but the evolution of new products capable of providing a default solution for the savings of millions of us.

These products will synthesise the transparency and engagement of personal pensions with the predictability and collectivity of earlier products. Without this development in product evolution we will be left with the mess we have today – and Guidance


this post first appeared in http://www.pensionplaypen.com/top-thinking

Posted in auto-enrolment, Bankers, corporate governance, Financial Education, pensions | Tagged , , , , , , , , , , , , , | Leave a comment

Three old farts on DC regulation











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

Last week the Pensions Regulator issued his Annual Report along with a summary document (there is a comment here on the attention span that most of us now have for his 152 page documents) http://www.thepensionsregulator.gov.uk/about-us/annual-reports.aspx#s15195 . In this he admitted to missing two of his key KPIs on DC Governance.

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

Should we be worried about this?

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

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


I do have some thoughts….

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

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

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

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

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

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

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

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

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

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

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

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

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



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

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

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

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

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

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

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


This article first appeared in http://www.pensionplaypen.com

Posted in auto-enrolment, pensions, Pensions Regulator | Tagged , , , , , , , , , , , | Leave a comment

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

It's better when we do it together

It’s better when we do it together

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Advisers are happy to see the status quo continue.

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

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

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

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

This article first appeared in http://www.pensionplaypen.com





Posted in advice gap, auto-enrolment, Blogging, pension playpen, pensions | 1 Comment

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

michelle cracknellTreasuryMaggie Craig


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

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

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

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

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

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

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


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What are your CDC property rights?


Some pension promises are easy to value

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

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

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

 CDC promises are harder to value

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

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

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

Trust , transparency and good rules

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

 Valuing the future promise not the present value

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

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

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

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

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

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

 Discretionary values – a charter for Mr Ponzi?

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

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

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

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

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

 The answer is that there are no definitive answers

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

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

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

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

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

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

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

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

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

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

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



This article first appeared in http://www.pensionplaypen.com/top-thinking


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……we have a problem, Brighton.


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



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


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




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


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


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



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

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

workplace advice

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

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


80% of our business is referred with the majority of referrals coming from accountants and IFAs. The market is moving towards us, we have not got the time, resources and muscle to promote ourselves as we would like to. But so far in July we have picked up 4 national awards as the media begin to “get it”.


http://www.pensionplaypen.com is often referred to  as “employer facing” and this is true. But we have over 500 intermediaries registered on www.pensionplaypen.com with numbers increasing by 50 a week.


So what are the alternatives?


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


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


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


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


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


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

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

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


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


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


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


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


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

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

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


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


We fear that the two models are mutually incompatible.


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




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


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


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

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


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


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


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


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


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




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


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


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


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


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


We think the scope of any service must include

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


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



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


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


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


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


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


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

So some kind of market intervention is probably needed.


This post was first published in http://www.pensionplaypen.com

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Male, Pale and Stale – in your face!


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

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

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

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

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


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

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


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

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


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

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

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

Andrew young

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

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


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


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


and yes there are a lot of women else.

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

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


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

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

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



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The internet of pensions

unage of pension

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

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

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

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

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



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

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

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

It’s called an information asymmetry


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

It’s called an information asymmetry


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

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

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

it’s an information asymmetry




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

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


There are many other examples of intelligence that are failing us

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

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

The Open Interconnect Consortium – pensions need you!



This post was first published at http://www.pensionplaypen.com

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Carry on nudging!


We may just have been nudged.

We’ve been getting  interested in salary sacrifice. We have been building a salary sacrifice modeller into the workforce assessment tool on http://www.pensionplaypen.com by popular demand.

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


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

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

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

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

And we are very much in virgin territory now.

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

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

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


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

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





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Pension PlayPen overall winner at IMAIA 2014!



Not every swan is black

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

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

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

This is the blurb from IMAIA which caught our attention.

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

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

The awards recognise and reward innovation within the sector.

The judges looked for entrants who showed:

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

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

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

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

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

Pension PlayPen is the social media organisation of the year

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

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

Pension PlayPen won the Inclusiveness Award

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

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

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

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

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

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

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


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


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


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




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

Posted in brand, Cruise boats, customer service, de-risking, gloriana, henley, Henry Tapper blog, pension playpen | Tagged , , , , , , , , , , , , | 3 Comments

Pension PlayPen- Britain’s most innovative pension consultancy

workplace advice


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

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


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

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


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


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

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

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

old and new


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Awards reward Pension PlayPen for a cracking year

hi res playpen

It was only a year ago when I, Andy ,Stella ,Martin, Steven,Guy and the lads from @firstactuarial signed the share register and launched http://www.pensionplaypen.com

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

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

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

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



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


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



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

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

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

Sign up to http://www.pensionplaypen.com/register and join the Pension PlayPen army as we make sure nobody gets left behind!

AE one two three


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No small company should spend 103 man days on pensions!

AE one two three

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

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

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

We are now on a new crusade.

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

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

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

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

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

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

But we need your help!

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

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

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

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

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

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


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

The Government’s response can be found here

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

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

We are as concerned as we can afford to be.

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

Consultants are quick to raise concerns

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

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

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


These Consultants are tilting at windmills!

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

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

This is based on these simple observations

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

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

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

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


The meat and two veg

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

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

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

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

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

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

For me – that is enough!

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

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

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

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

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


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

We stood here in 2009 with auto-enrolment.


This post first appeared in http://www.pensionplaypen.com/top-thinking


Posted in David Pitt-Watson, dc pensions, defined ambition, defined aspiration, drawdown, pensions, Pensions Regulator, Public sector pensions | Tagged , , , , , , , , , , , , , , , | Leave a comment

“Who’s on our side?”


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

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

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

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

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

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

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

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

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

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

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

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

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



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Andrew Young – 65 not out – a pensions legend!

Andrew young


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

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

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

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


Victoria’s Front Room Restaraunt- like Father like Daughter

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

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


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

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

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


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

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





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It was auto-enrolment that did for Hitler?

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

Thanks to Will Lovegrove of Systemsync 


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

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

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

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

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


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



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

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

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

The good news-

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


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

A buyers guide to auto-enrolment software

auto-enrolment traffic jam

Some initial thoughts

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

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

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

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

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

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

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

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

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

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

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

So how independent is this buyers guide?

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

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

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

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



Question One – Is your payroll up to the job?

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

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

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

Question Two – can you rely on you Pension Provider?

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

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

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

Do all providers offer middleware- what about NEST?

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

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

Question Three – should we consider independent middleware?

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

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

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

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

Question Four – what about wider considerations such as flex?

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

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

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

The table below shows these additional services at the bottom,

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


Question five – should you be taking advice?

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

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

workplace advice

In conclusion

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

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


A short history of auto-enrolment software provision


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

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

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

Where the market is today- the IFA is currently king

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

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

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

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

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

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

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

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

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

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

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

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

This post first appeared in http://www.pensionplaypen.com

Posted in accountants, advice gap, annuity, auto-enrolment, middleware, NEST, now, Payroll, pension playpen, pensions, Retirement | Tagged , , , , , , , , , , , | 2 Comments

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

three wise monkeys


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

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

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

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

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

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

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

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

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

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

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

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

But most insurers have little skin in the asset management game

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

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

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

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

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

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

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

Who will win in this long-term game?

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

I know who I want to win- the consumer.

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

There should be  only one winner -the public

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

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

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

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

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

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

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

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

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




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This country needs a proper debate about old age


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

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

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

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

value of something

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

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

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

The article was written in 2008

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

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

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

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

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

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

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

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

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

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

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

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

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

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

But it’s not hard to ask…

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

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

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

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

 We are changing the way we get paid to work

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

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

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

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

 We are changing  the way we get paid to stop work

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

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

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




This post was first published in http://www.pensionplaypen.com/top-thinking

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We need to know ourselves to plan the future.

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

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


The first thing about yourself you should know

Know what you get from the State!

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

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


The second thing about yourself you should know

Know what you can get from your house!

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

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

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

The third thing about yourself you should know

Know what you can get from working!

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

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


This is more about emotional than financial intelligence

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

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

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

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

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


How we can help people better understand these things

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

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

The Guidance Guarantee at retirement will be a great help

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

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

What we do at First Actuarial

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

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

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




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Why Steve Webb took a punt on CDC


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

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

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

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

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

Is CDC a political risk?

Certainly CDC will not re-ignite the liberal party!

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

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

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


What’s it for?

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

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

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

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


Why do we need more legislation?

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

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

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

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


Maintaining the consensus

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

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

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

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

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

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


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Why Face to Face Guidance may be impossible.

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

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

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

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

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

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

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

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

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

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

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

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

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

So no plans to change from Face to Face guidance.

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

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

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

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

But compare

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

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

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

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

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

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

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

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

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

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

Advice is a recommendation of what to do.

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

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


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

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

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

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

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

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

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

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


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

For Geeks interested in the full text published so far, here is the link https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/316702/Queens-Speech-2014.pdf  that Alan Higham kindly released on twitter


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

The point of the Bill is to;-

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

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

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


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

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

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

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

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

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

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



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CDC – how it could work!

target pensions

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

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

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

But why are they needed?

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

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

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

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

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

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

With one important difference!

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

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

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

It’s the same for defined benefit and defined contributions

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

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

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

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

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

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

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

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

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

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

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


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

This is how collective defined contribution schemes will usually work.

Substitute for “village” “provider”.

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

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

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

chart 5

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

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

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

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

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

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

1. Cash-out

2. Annuity

3. Standalone CDC Scheme

4. CDC scheme of your provider.

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

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

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

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

Why CDC makes long-term sense for this country

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

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

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

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

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

Some thanks

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

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

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

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

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



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Ten mistakes CDC cannot repeat.


CDC (Target Pensions Plans)  look likely to happen

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

But it needs to win the public’s confidence

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The ten lessons we must learn

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

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

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

CDC- the final piece in the jigsaw

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


Screen Shot 2014-03-30 at 19.23.20


Posted in advice gap, auto-enrolment, David Pitt-Watson, dc pensions, pension playpen, pensions | Tagged , , , , , , , , , , , | Leave a comment

What will these pension freedoms cost the Treasury?


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

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

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

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

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


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

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

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

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

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

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

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


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

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

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

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


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

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

Post-behavioural costing

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

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

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

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

Post-behavioural Exchequer impact (£m)

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

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

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

Areas of uncertainty

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


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

I haven’t read her version of the story but I’m sure it is brilliant (though you need to be a subscriber) it can be found here. m.ft.com/cms/125210c4-e


This article first appeared in http://www.pensionplaypen.com

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

As for saving- our kids could be teaching us!

Alvin PF-MLewis_2117863b ros_altmann-260-x-175


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


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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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


Should who should be found in financial education ?

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

But all the research says they want and need help.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Kids appear more natural savers than adults

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

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

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

This article first appeared in http://www.pensinoplaypen.com/top-thinking


Posted in accountants, Financial Conduct Authority, Financial Education, pension playpen, pensions | Tagged , , , , , , , , , , , | Leave a comment

Matisse cut-outs


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

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

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

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

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

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

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

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


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



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



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

debt relief


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

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

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

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

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

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

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

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

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

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

Screen Shot 2014-03-30 at 19.23.20

Or construct fantasy retirement strategies like the one below

Screen Shot 2014-03-30 at 19.25.09


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

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

Here’s how the yanks explain it…..

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


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

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

consumption alone


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


chart 5

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

The graph below shows you why financial injuries happen.

us market

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

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

What this graph shows that you should have owned loads of


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


Dtnamic v static


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

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

Lifetime ruin

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

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

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


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

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

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


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




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


Otherwise there is always the comments box!

 This article first appeared in http://www.pensionplaypen.com

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Advisory mastertrusts? – Nein Danke!


nein danke

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

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

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

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

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

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

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

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

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

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

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

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

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

This article first appeared at http://www.pensionplaypen.com/top-thinking


nein danke

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

Vertically integrated mastertrusts? – “my arse!”


Pardon my Scouse!

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

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

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

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

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

Here’s why vertical integration sticks in my craw

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

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

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

2. It is a model fraught with political risk.

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

The issue?

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

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

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

How different is this? Not different enough in my book


3. It is not a durable model.

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

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

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


4. It does nothing for Mercer’s advisory practice

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


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

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

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

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


Hear this debated!

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

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

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

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

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



This article first appeared in http://www.pensionplaypen.com



Posted in actuaries, advice gap, pensions, Retail Distribution Review | Tagged , , , , , , | 2 Comments

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

Josh Collins
Josh Collins


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

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

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

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

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

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

I quote his idea in full.

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

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

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

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

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

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

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

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

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

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

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

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


This article was first published in ww.pensionplaypen.com/top-thinking

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“Open Government isn’t an idea, it’s an action”


When you walk into the DWP’s offices in Westminster, you are greeted with a montage of Male, Pale and Stale mug-shots of politicians and permanent secretaries who are the DWP’s big wigs. Very 1980s – very Sir Humphrey!

But that’s where MPS ends!

I turned up yesterday – suited and booted – as I was seeing the Head of Pension Reform.

The Head of Pension Reform, who used to be the senior pensions adviser at the Treasury came down to greet me, asked me if I minded walking up to the first floor and offered me tea. “Tea”, in such circles, usually means summoning a flunky to deliver your something in a bone china mug. But not with Charlotte Clark.

Tea for Charlotte Clark means a visit to the kitchen, washing up a couple of mugs, getting your bottle of milk from the fridge and  doing that teabag trick which only women can manage -extricating the tea bag from the cup without spilling tea on the work surface.

Now all this happened just after 8 am so that I could get a full hour with her to put my questions to her. Which is pretty considerate! But by the time I’d sat down with Charlotte in the lunch area, we were already well into our first topic – why doesn’t this happen more?

Instead of the expected intimidation, I found myself listening to Charlotte delighting in her staff. She told me of a guy who has worked on auto-enrolment since 2007 who refuses to be taken off the project and has pledged to work through till AE is business as usual in 2019.

And when we talked she knew everything- about our three campaigns at FofAE , about the guidance guarantee and new annuity options, about the minimum standards for workplace pensions and about how CDC could be integrated into the new pension framework.

“Open Government” isn’t an idea, it’s an action and when you see it in action, as I did yesterday, you realise just how powerful it can be!

People we passed on our way in and out of the building wanted to say hi! to Charlotte but she got their first, she didn’t act like a boss – except she was.

As I left, I saw how badly that montage of MPS needed her up there! That’s no criticism of Steve Webb or IDS or even the Sir Humphrey types who still get their mugs in the frame. But I will remember the mugs that Charlotte washed for our tea with much more affection!



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Three Auto-Enrolment campaigns you must follow

tpf_web_header_largeSome are born great and some have greatness thrust upon them  (Malvolio- 12th night)

Well even the pompous idiot Malvolio in Shakespeare’s 12th night would not recognise my promotion to “national campaigns manager” for the Friends of Auto-Enrolment as “greatness” but it does mean that I have to define what our campaigns should be and since there are now nearly 700 members in the group- I’m taking my role seriously.

So what are the big campaigns? 

There are 3 ,   “1-2-3″ as Ian Dury would have said!

1. To promote PAPDIS , an industry standard for payroll and pension providers to talk with each other.

Why’s this important? If we have to have differing interfaces for every provider , payrolls will either have a lot of extra work or there will be a lot less “provider choice” in the market. Both of these outcomes can be avoided by bringing all the insurers and mastertrusts around a table with payroll providers

The solution; BIB, the CIPP and Friends of Auto-Enrolment, build on work done by the ABI’s Origo and build a standard. The next job is to get everyone to sign up. Support from you is much appreciated.

Next step; drop me a line at henry.tapper@pensionplaypen.com if you support this idea and I’ll see how we can use this support going forward.

2. To promote awareness of auto-enrolment to the 1.2m employers who’ve yet to stage and the 200k new employers born every year/

Why’s this important? Auto-enrolment is a good thing for Britain, for employers and for employees. Getting everyone over the starting line and off on the marathon is a good idea, having lots of uncompliant stragglers brings AE into disrepute and means that fines will be dished out by tPR (which nobody wants)

The Solution; we need Government support, the last campaign did very well . The stats published by the DWP this week suggest 74% of employers are aware of AE, 78% support it and 85% were aware of the “I’m In” campaign. The “No-one gets left behind” campaign, run by AccountingWeb is leading the way in reaching the 1.2m employers still to stage and it’s very much part of the solution.

Next step; if you haven’t joined the No-one gets left behind campaign- do so now by visiting www.accountingweb.co.uk/auto-enrolment and become a supporter.

3. To promote saving into a good workplace pension.

Why’s this important? It’s one thing to save, another to save well. In the past personal pensions have often provided a poor way to save. The DWP are bringing in Minimum Standards to protect people who save from being ripped off through high charges, unfair charging structures and commissions that allow employers to offload the costs of auto-enrolment onto staff. The new standards are a step in the right direction and we want to promote good pensions over bad.

The Solution; The Pensions Regulator and the FCA have said that helping employers to choose a workplace pension is an unregulated activity. Advisers and accountants can provide help on the choice and there are websites they can go to which provide the analytics for employers to make proper choices.

Next Step; we want advisers, accountants and employers to get to grips with workplace pensions and use the resources available to them. Please check out the Pensions Regulator’s web-page on choosing a pension scheme for guidance.

So there you have it. Three campaigns designed to make Auto-Enrolment work. I’d really welcome your comments about the campaigns and whether accountants and advisers should be involving themselves in ensuring no-one gets left behind.

A recent Pension Regulator survey suggested that only 40% of accountants wanted anything to do with auto-enrolment. Let’s prove that statistic wrong.

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Please don’t discourage saving (guest blog from Ralph Frank)



The Department for Work and Pensions (“DWP”) recently released its latest “scenario analysis of future pension incomes” (the “Analysis”). A key finding of the Analysis is that the proportion of people under-saving for retirement increases as income rises. Part of the under-saving can be explained by the impact of the State Pension falling as income increases. The diminishing effect of the State Pension exposes the insufficient level of private savings by savers. This lack of private saving might well be an issue of affordability, as noted in the Analysis, with “middle income groups” needing to save over 8% (paragraph 128) and “high earners” having to put away more than 15% (paragraph 127) to avoid under-saving. However, another factor might be at work too – the maximum amount of pension saving that can be built up with the benefit of tax relief, known as the ‘Lifetime Allowance’ (“LA”).



The current Government has implemented a raft of measures (e.g. Auto Enrolment, simplification of the State Pension, freedom and choice at retirement etc.) to encourage greater pension provision, particularly from private sources. This encouragement has, however, been curbed by a reduction in the LA. The LA is a fairly blunt tool aimed at limiting tax avoidance – in theory, not a bad idea (curbing tax avoidance rather than the blunt tool!). However, it is the execution of this idea that, in my opinion, contributes to the under-saving identified in the Analysis.


The LA is a specified capital amount, despite income in retirement being a more relevant metric for pension saving to my mind. An income-related assessment is made for those receiving a pension from a Defined Benefit (“DB”) scheme. The LA is seemingly unrelated to financial market conditions too. The peak level of LA applied over 2010-12 at £1.8m and the LA has subsequently been cut to £1.25m for 2014-15. The reduction has taken place during a period of falling bond yields. The capital required to provide a specified level of post-inflation income to a 65 year old retiree and their spouse has increased by more than 20% over the period of the LA cuts. Consequently, the effective reduction in the level of retirement income benefiting from tax relief has been almost 50%!


The £1.25m LA equates to a gross of tax income in retirement of not much more than £30,000 p.a. in current markets for a 65 year old who wants an income that escalates in line with the Retail Prices Index and has a 65% spouse’s benefit (for a spouse who is three years younger). Is it a surprise that under-saving increases dramatically as pre-retirement incomes approach and exceed this £30,000 level? The incentive savers have to provide for themselves, even after allowing for a lower required level of income post-retirement than pre-retirement, is removed and savers respond accordingly.


Some savers might find themselves in breach of the LA even if they do curb their level of contributions. This breach might arise from the savers’ investments performing strongly in capital terms (even if not in terms of income in retirement). Is it Government’s intention to penalise successful investors?


Those who receive their pension from a DB scheme are not affected by investment outcomes, in the context of the LA. DB recipients also benefit from their LA assessment ignoring whether their pension is payable to a dependent after the primary pensioner’s death. The dependent’s pension might well be extremely valuable, particularly in the case of a much younger dependent. The value of the total pension is, for example, around 35% higher if the dependent is 20 years younger than the primary pensioner rather than three years younger (based on a 65% dependent’s pension).


A more effective mechanism than the LA is required to balance the need to stimulate private pension provision against that of curbing tax avoidance. Different mechanisms are appropriate for different types of schemes, although clear equivalence would be welcome. An accrual limit (say 1/50th of relevant salary, subject to a maximum limit, for each year of service) would work for DB schemes. A contribution limit is relevant for defined contribution schemes, ideally linked to retirement income by taking age and prevailing interest rates at the start of the tax year into account. Implementation practicalities might dictate that a flat rate, along the lines of the current £40,000 p.a. for 2014-15, is more workable though. A contribution limit might well also be relevant for Shared Risk schemes, as and when these come into being. Whatever the approach ultimately taken, why not remove barriers to reasonable saving as far as possible?pig2

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The Mansion on the hill (that no one visits).



I bumped into some friends at the DWP this week. They were waiting to talk to some civil servants about Defined Ambition (and especially about CDC, they were actuaries). I was going to see the workplace pensions team about DC (I’m not an actuary).

Next week I’ll be talking to politicians ,civil servants and to think-tankers about all the new retirement options we’ll be getting from 2015 and trying to make sense of them.

So I’ve been running through them in my mind and trying to do a 5 minute pitch to myself on how we can present them to people (at guidance sessions).

There are some useful papers out from HMRC, the most accessible being the Draft Guidance on the new drawdown rules.

If you fancy reading the (Draft) Taxation of Pensions Bill, you can do so here together with the accompanying explanatory note

But if you don’t fancy spending your time browsing , here’s my starter for ten


 Update on pension options for those with DC pensions

There is of course the old favourite – the annuity – supplemented now by the short term annuity (available from an insurer near you). I don’t get short term annuities  which seem to be a bit of a muddle but that’s not the point of the blog.

The new favourite will undoubtedly be the newly revamped flexible drawdown , the one that lets you pay your tax and buy an annuity.

And now there are what we call FLUMPS where you get your tax free cash paid out on the drip and you only “crystallise” what you spend from your pot. Unlike flexible drawdown, this variant allows you to keep your options open and keep your rights to tax free cash invested in your pension pot.

Keeping options open may be very important, especially as the CDC option is still under discussion and won’t be available to 2016 at the earliest.

CDC is – to us pension folk – a bit like the mansion on the hill. We can see its plans (the Draft Bill) and can talk with the DWP about planning issues, but it’s going to be a couple of years till anyone moves in and it hasn’t got final planning permission anyway.

Worst of all, as some naughty non-actuary keeps pointing out. The mansion appears to be planned without access! The idea is that employers buy into the mansion even though they’ve got a perfectly serviceable pension which is building benefits under auto-enrolment. Buying an alternative (pension) residence for employers looks a bit extravagant and a bit risky (as they’ve spotted that CDC runs a risk of being considered DB at some time in the future.

The employers looking at the CDC Mansion on the Hill do however see it as a great retirement home into which they can move their superannuated workers when they start winding down into later life.

Unfortunately this option is not currently in the plans, there is no way that CDC can take transfers into it unless the member has been in the employ of an organisation that has sponsored such a scheme. The CDC is a closed shop- or should I say Mansion with no gates.

Until those drafting the Pensions Bill wake up to this problem and draft legislation to allow anyone to be able to join a CDC scheme (provided they have pension benefits to transfer in) CDC looks like an expensive folly (and for once I agree with John Ralfe here).

But back to the new annuity options with which I started. These are not part of the CDC legislation and it’s unclear whether the Treasury even had CDC in mind when drawing them up. As we don’t know whether the mansion will be built or if it will ever be occupied, the pragmatic Treasury drafters are probably right to concentrate on the here and now- and what people from 2015 can actually do.

But what I do see in the new Flumps (“an uncrystallised funds pension lump sum” to use Treasury-speak), is that they allow you to keep options open.

There will be many people next year who will be reviewing their pension options- many in drawdown and many contemplating it. There will be those with DC AVCs from DB schemes and those who are coming into the retirement zone for the first time (e.g. the over 50s). For all these people, the choices ahead will be complicated.

It is right that the Government has offered Flumps, it looks a great alternative to the current drawdown product and it is a proper pension product.

It is right that the Government is paying attention to the recycling issues (they may have to reduce the AA still further to protect other taxpayers)

It is right too that it presses on with CDCs.

But it is absolutely imperative that whatever is built or planned for by April 2015 has certainty about it at April 2015.

Especially we need to be clear as to whether CDC is an option from 2016 and how people will be able to use it .

And we need to be sure that the choices we take in 2015 about our retirement income are made with full information on any restrictions those choices create on future options.

As I talked with the actuaries in the lobby of the DWP’s offices, it became clear that we need people who understand both the individual choices and the corporate decisions and who can ensure that we don’t build mansions that no one can access. We need to be sure that individuals have the same options in retirement whoever they worked for and that money can move from individual to collective schemes and back again without impediment.

I fear that those with a collective agenda and those looking at individual solutions are (as they are in Holland) a pole apart and that the loser in a “non-joined up world” will be the pensions saver.




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One million employers buying pensions in the dark.

hi res playpen

I am comfortable with the interventions by Government in the sales side of workplace pensions.

The DWP’s minimum standards legislation is progressing well and we look forward to seeing some secondary legislation in September.

The Treasury’s work transforming the choices we will have from next year at retirement is picking up pace.

The longer term projects – around commissions , transaction costs and CDC and the introduction of the new Single State Pension, seem on track for delivery in 2016.

Auto-enrolment continues to progress well and the Pension Regulator is doing a great job ensuring “nobody gets left behind”.

So Steve Webb and George Osborne’s work is coming to fruition and both the DWP and the Treasury look to have done a great job… so far.

This week we saw the 4m’th worker enrolled into a workplace pension. The pensions of the 15,000 or so employers who have so far staged have been generally been chose with care, mostly by pensions experts either in-house or through external advisors.

The OFT were not however describing the larger employers when they stated last year that they had seldom encountered such weak buying as in the purchase by employers of workplace pensions.

They were referring to the kind of employers who are staging now and the 1 million employers still to stage most of whom have little more buying capacity than the man on the Clapham Omnibus.

They represent the biggest remaining challenge to the workplace pension reformers. For although they will (thanks to minimum standards) buy into better pensions, they have no idea if they will be buying a pension that works (either operationally or in meeting the needs of their staff).

Last month, I got a mail from the Pensions Regulator asking which contained the following.

TPR are giving some thought to how smaller employers will go about finding a pension scheme and would very much like to hear your views on the subject ….

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

  2. Are there already solutions to this problem out there suitable for small and micro employers?

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

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

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

  6. If you don’t think the market will or can address this problem, why not? Please indicate whether these are purely commercial considerations or other more basic/fundamental considerations

These are precisely the questions I asked myself before setting up www,pensionplaypen.com , they were asked by the OFT and they are now being asked of the pensions industry,

For many in our industry, the fate of the remaining 6m yet to enrol is of little commercial significance. “Nest will take care of this” is a typical response I get when I ask the question.

For many SMEs and micros is the right answer. But if an employee asks his boss why he chose NEST and is told- because it was the only answer then something will have gone wrong. If your workforce is elderly and/or high-earning, if your workers are looking to aggregate their pots into one big pot of to take their pot with them when they leave you, then NEST is the wrong answer.

And if you’ve just invested 8% of your workforce’s wages into the wrong answer, then they are entitled to know why. Even if NEST was the right answer , you should be able to tell them why.

But it seems that we currently think it acceptable for employers to establish a workplace pension scheme without taking advice, without doing research and without any external assistance in making a choice.

It seems we have learned nothing from the OFT report about the weakness of employer purchasing. We are simply trusting in minimum standards and the market to provide competition.

The market is providing little competition. In a research report that accompanied the questions listed above are some observations from the Pensions Regulator

Research carried out by DWP (EPP survey 2013) showed that 48% of small and 79% of micro employers currently have no pension scheme so will have to choose a new one as they prepare for AE. 

TPR research suggests that:

  •  Around one in five small and micro employers claim they will be self reliant , i.e. they won’t or are unlikely to seek advice (approx 290,000 employers) 
  • Around one in ten will be self reliant and don’t know how to select a scheme or think it will be difficult (approx 130,000 employers).  
  • Other SMEs will turn to their accountant or bookkeeper for assistance with finding a pension scheme, yet only 41% of accountants anticipate helping their clients with this and they are not necessarily better informed than their clients.
  • Our qualitative research suggests self reliant small and micro employers fear choosing a scheme and want to understand what schemes are available before making a choice – they will rely of a mix of personal recommendations, internet searches, comparison websites and TPR’s website for information.

This is an ongoing problem – approx 200k employers are ‘born’ every year, many of which will need to find a new pension scheme

So these employers are not comfortable being ignorant and even less comfortable with the lack of information available in the market. The Pensions Regulator concludes his report in stating what its research suggests small employers do want.

  • Simple practical steps on how to choose a pension scheme without having to understand scheme types

  • Practical questions to ask to ensure the scheme is suitable Practical questions to ask to ensure the scheme is suitable (e.g. can I buy it direct, will it do everything I need to do)

  • Shortlist of AE schemes available to them

  • Ability to compare charges and any employer fees of shortlisted schemes

  • Ability to compare wider AE support offered by scheme (e.g. workforce assessment , communications to workers)

I jokingly replied to my colleagues that the answer was to nationalise Pension PlayPen. We appear to be the only online resource dedicated to answering the regulators questions and delivering the services that small employers want.

We have to charge to do this and that charge has to fall on employers. To rely on other forms of funding would almost certainly fall foul of some rule or other around inducements.

The cost of our service, which includes a workforce assessment, contribution modelling as well as whole of market procurement, First Actuarial analytics and the provision of reports and certification from a qualified actuary, is £499.

The service is available to any employer in the UK and can be accessed directly at www,pensionplaypen.com/register.

Nobody wants to admit that there is a huge shortage of advice and guidance and simple information for employers. Everyone is assuming that this problem is sorting itself out. But it isn’t sorting itself out.

SMEs and micros are no better buyers than they were this time last year when the OFT made this comment.


I have asked the Pension Regulator what steps are being taken to remedy the situation. I pointed out that there were many unregulated advisers who we could educate to help promote good pension purchasing by employers, referring to this statement by the FCA and tPR in March.

workplace advice

and I  got back this reply.

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.

So employers will be reliant on people with the right skills and knowledge to give advice or express an opinion on what they should do. The Institute of Chartered Accountants is advising its members not to get involved and time is moving on.

I do not see the strategy within the private sector. Pension PlayPen cannot get to 1m+employers without some serious investment and I have not got those deep a pockets!

I am afraid that this is a matter for Steve Webb and the DWP policy reform team. Unless we get some “skill and knowledge” about the suitability of workplace pensions and until we get systems in place which allow employers to take informed decisions and provide a record of the decision making for their staff, we are at risk of having 1m employers who have bought in the dark.

Posted in accountants, auto-enrolment, DWP, NEST, now, Payroll, pension playpen, pensions, Start ups | Tagged , , , , , , , | Leave a comment