Is Pension Wise doomed from the start?


This question was posed on the Pension Play Pen Linked in Group by Jonathan Lawlor, a distinguished actuary and someone who thinks about these matters with an independent mind.

He had been reading a new paper by Debora Price “Financing later life: why financial capability agendas may be problematic:” which states

There is “no evidence that financial education has any substantive long term impact on financial outcomes”

There are a number of challenging thoughts in the paper:

” we see that it is individuals that must change their behaviour to meet the needs of the market, rather than the other way round……

They are no longer citizens of equal value to the State but now consumers who must play their various responsible parts in the functioning of the financial services industry”.

It is language like this that serves to construct failures in the government project for the provision of financial welfare in later life through the private sector not as the result of flawed government policies, but rather a result of flawed people.

Following the logic in extracts such as these, if the financial services market does not work efficiently, does not lead to innovation, offers poor quality and poor value for money,it is not the fault of government in designing the system, but of individual ‘consumers’ for not being sufficiently well informed. “

This view of the individual , at the mercy of what the financial services companies give them is commonly held, not just by academics but by “consumers” in general.

But it is a selective view. There remains a substantial body of opinion, of which Debora is both representative and a thought leader, who consider the role of the state to ensure that financial outcomes are good , both by intervening in the financial services market and by delivering pensions which have nothing to do with insurance companies, asset managers and financial advisers.

Indeed most people, were they aware of its value, would regard their rights to the basic state pension as their largest unencumbered post retirement asset.

I am sure I am misrepresenting Debora in suggesting that her view is unbalanced. I know her and have spent a fair few hours in agreement with her. If I differ from her, it is because I am on the inside of the private pension system and she is looking in.

I know that there is a strong bedrock of decent people within pensions who are fed up with seeing the pensions industry being dragged down by shoddy practice in whatever form. Who aspire to restore confidence in pensions by practicing what we preach.

Practicing what we preach

I would include among these people the 40 odd people who work full time for TPAS, the 400 odd case-workers who provide services for free to help people resolve pension disputes, the army of lay trustees who sit on pension trustee boards for nothing and the many people like Jonathan, who are actively engaged in finding new ways to old problems.

I don’t think that Pension Wise is the answer, but nor do I expect it to be a disaster. It will be what it sets out to be, a way to help people organise their thinking around the money they have at their disposal to supplement the collective benefits they have.

“Financial products” , annuities, income drawdown from SIPPS and Personal Pensions and the variants that are likely to mutate from Defined Ambition are not the answer for most people.

These products require people to make the “right decisions” and Pension Wise will not – in itself – be able to do this. It may be the catalyst for some to take control of their finances as Martin Lewis is the catalyst for many people to go debt free.

But we don’t generally have the financial capability to do the complex maths to work out how much to draw from our savings to make them last. Nor can we easily grasp the concept of insuring against long term care and we are hopelessly inadequate at doing the asset liability modelling to make the right investment decisions on our glide-path to death.

Even if we get so far as getting a plan, we then have to make choices on how to implement it and that means understanding the range of financial products and choosing which are best for us.

People should not be demonised for not being good at pensions

It is not fair to make ordinary people feel guilty for not being able to think all this out.

Instead , we need to find new collective mechanisms for people who aren’t wanting or able to navigate around all the choices I’ve just talked about. Thankfully there is a piece of legislation making its way onto the statute books that enables such collective schemes to emerge.

And it is important that these new collective pension schemes (known today as CDC) are allowed to emerge without them being strangled by the financial services industry.

I am with Debora that it is not the fault of people that they don’t get financial services. Nor are they naughty for not being able to do the maths.

People should be able to join collective schemes without the need for financial advice and not just because they are lucky enough to work for an employer who is prepared to set one up or participate in one.

Everyone should have the right of putting their retirement savings into collective arrangements – either run by the State – as NEST is – or by the kind of organisations who really do care for people in older life.

In case anyone is any doubt – such organisations do exist.

Pensions Wise is one such organisation.

Some commercial organisations that provide financial education in the workplace are part of this Force for Good. I can say that with some confidence as I work for an organisation that really thinks about how these issues and is trying to provide financial education that does not promote products but aims to ease decision making.

We do not say “it’s your fault”. We do try to help people navigate but Debora is right, we cannot pretend that Pensions Wise and Financial Education in the workplace are enough to sort the problem. The problem cannot be solved by personal empowerment or “the financial capability agenda”.

The solution to society’s problem with later life lies with society and with social or collective financing. We need to continue to rebuild the state pension, we need to get a proper system of funding for long-term care in place and we need to find a home for people’s pension savings that is not a “financial product”.

Without Pensions Wise things could  be a whole lot worse, it is not the answer in itself, it is a sticking plaster.

Debora Price – Pension Champion

We are very lucky to have Debora Price saying these things. I might add she is a great golfer (currently ladies champ of the Pension PlayPen Golf Society)

golf 044

But if you really want a proper understanding of her views, I urge you to spend 30 minutes listening to this (thanks John Lawlor again -for sharing).

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De-risking strategy found in pocket of comatose trustee



The Pension Plowman rifling through the pockets of a trustee lying in the gutter following an all night pension celebration , has found too documents, the first a copy of Corporate Adviser the full text of which can be read here

One section of one article was ringed in red lipstick

The government is relaxing the rules around requiring advice for DB to DC transfers, with the £30,000 threshold to be applied on a per pension basis rather than on a total benefits basis.

It had originally only planned to allow DB transfers without authorised financial advice where an individual’s entire pension assets were below £30,000.

The other document appears to be a sales script hand-drafted with the title

How to get rid of the poor buggers!

For the benefit of readers who may be able to benefit from such assistance I include the entire text

Hi there!

So let’s get this right-

You’re over 55 , have some defined benefit rights in our pension scheme and could do with the money – now! Faster than a payday loan, I’m going to make you an offer.

It’s called a DTV. That stands for depressed transfer value.

Now I know you were hoping for fair value from you transfer value but there’s a problem, fair value for your pension rights is around £35,000.

There’s a problem with that £35,000- it’s £5,000 too much to help you. So we’re going to depress it to £30,000 so you can have the money tomorrow!

It’s not our problem, it’s the Government’s. You see those twits in Whitehall are saying that if your transfer value is a penny more than £30,000, you are going to have to take advice and you’ll have to find an insurance company that’s prepared to take your money and by the time you’ve done that it will be too late – your gratification will be deferred!

And what’s more y0u’ll still only get £30,000 because all the fees and commissions will skim off £5,000 – easy!

So we’ve decided as your trustees to ask you to accept £30,000 and we’ll bring it round in used fivers tomorrow morning! Infact we’ll get our actuary to deliver it you in person. Better still we’ll ask his young attractive actuarial student to bring it round in person!

Who said we don’t incentivise transfer payments!

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How low can guidance go?

without advice

The FCA have published an important document that sets out to define where guidance ends and advice begins. Thankfully , it’s one you can read without feeling guilty that you aren’t going to answer 150 consultation questions!

The FCA has also published feedback from advisers as part of this paper which will hereby be known by the FCA as FG 15/1 and on this blog as ‘finalised guidance”.



Knowing your boundaries

In the Executive Summary we learn that the FCA

“know that firms want greater clarity about how they can help customers to make informed decisions without stepping over the boundary into providing a personal recommendation”.

This is certainly true of my firm, First Actuarial which acts for many employers keen to help staff take prudent decisions on their finances that will make them more productive when they work and more comfortable to stop working as they get older.

So what is defined as advice?

MiFID investment advice involves the provision of personal recommendations to a customer, either upon the customer’s request or at the initiative of the investment firm, in respect of one or more transactions relating to financial instruments.

They give as examples

  •   Advice to a customer to buy shares in ABC plc or to sell Treasury 10% 2014 stock is advice about a specific investment and so is regulated.
  •   Advice to buy shares in the oil sector or shares with exposure to a particular country is generic advice because it does not relate to a specific investment and is not regulated.
  •   Advice on whether to buy shares rather than debt is generic advice and is not regulated.
  •   General advice about financial planning is generic advice and is not regulated.
  •   Guiding someone through a decision tree where they make their own decision,would not normally be advising on investments

“Generally speaking, giving someone information and nothing more, does not involve giving regulated advice’.


Applying those boundaries

The paper goes on to apply these principles to the changing behaviours of the people who take advice

Research by Mintel (April 2014) shows that around 40% of customers currently prefer to receive personal recommendations face-to-face rather than online, although 24% would be willing to receive personal recommendations online.

An example is given and the FCA conclude

the ability of the customer to make their own choices about the features they are looking for and the absence of apparent judgement about which features or products they should choose, would make it unlikely that the service offered would be viewed as MiFID investment advice (i.e. a personal recommendation).

This, in my opinion, is the key statement. I have made bold “absence of apparent judgement” as this phrase underpins what we consider “integrity and independence” to be all about.

Removing bias , so that information is distilled to its absolute relevancy, the circumstances of the individual taking the decision, requires great skill and knowledge of products and how they work, but it does not pre-suppose a judgement of what’s right for an individual.

In the final call, guidance stops short of being an absolute recommendation because it does not make that call.

Project Innovate

Of great interest, is the FCA’s offer to test on-line decision making tools using its Project Innovate  service.

As I understand it, an advisory firm can submit to the FCA data for evaluation from a test sample of clients who receive information  in a traditional way (fact to face) and then receive the same information self-served via the internet.

To take a local example.

  1. An employer asks an adviser for help in choosing a workplace pension , a market review is purchased and delivered face to face which leads to their making a decision. This process costs £2,500
  2. The same employer asks a comparison website for help in choosing a workplace pension , a decision is taken online without any manual intervention. This process costs £500.

I would hope that Project Innovate would help establish

  1. Under the FCA’s new definitions, which of these two approaches would be deemed advice, which guidance.
  2. Whether the employer in example one had materially better information/guidance/advice than in example two
  3. How the FCA could determine whether either option was delivered with an absence of apparent judgement.

(I should point out that in the context of FCA’s regulated activities, whether it is advice or guidance, what is given to employers is not deemed a regulated activity).

workplace advice

Does the delivery mechanism make a difference?

I am not a behavioural psychologist. But I believe from advising face to face and being involved in providing online decision tools, that where people use the online tools, they are able to take decisions without considering the judgement of third parties.

Provided that they take these decisions in the full possession of the relevant facts, my view is that they take decisions with greater objectivity and that the outcomes of those decisions are

  1. more likely to be owned by the decision maker
  2. more likely to be beneficial to the decision maker.

These are bold judgements on my part. They are not tested and if I am able to convince the FCA that we can use Project Innovate to test my theory , I will endeavour to assemble a test group of clients to form a statistically valid sample for these two approaches to be set against each other.

Critical to the FCA’s thinking is that the circumstances of the client are vital. Simple decision making involving a relatively small number of inputs may favour Pension PlayPen, more complex decisions may favour First Actuarial. I would certainly hope that this is the case as the price differential suggests that there needs to be considerably more value from the manual interventions involved in the First Actuarial service.


Doing away with shades of grey

For me, the paper makes sense. The shades of grey that represent simplified advice and other intermediary definitions serve only to muddy clear water. If we can define advice as MIFID do and be as clear about what sits on the guidance side and what on the advice side as the FCA are in this paper, then those involved in delivering guidance will know the point of handover, those delivering advice will know their value.

Clarity on how advice and guidance work in the context of the new media is also valuable.

Most valuable of all is the insight that the “absence of apparent judgement” is the mark of guidance.

The nature of human interactions makes it hard to give face to face guidance without the body language and tone of voice giving unwanted bias to the guidance given. To a lesser extent this is true on the phone.

The digital information that is available from organisations as different  as Nutmeg and Pension PlayPen needs to be tested by Project Innovate. We need to get better at understanding how decisions are being taken, whether choice is sufficiently informed and how consumers can be confident they are getting value for money.

But this paper, the accompanying feedback and the launch of Project Innovate encourage me that we are on the way to understanding how low we can go with guidance.


Posted in advice gap, FCA, pension playpen, pensions, Pensions Regulator | Tagged , , , , , , , , , | 2 Comments

We need some disruption – to sort the Hard Problem



Tom Stoppard’s new play, the Hard Problem, asks whether individual consciousness (and the ideas of good and evil that go with it) can exist in a material world. A world in love with the matter of fact.

It’s been billed as an intellectual jeu d’esprit but I enjoyed it most as a study in the application of ideas in 21st century Britain. Much of the play touched on the activities of my daily living, which was odd as almost everyone in the audience appeared to be university lecturers!

The peril of being early

There’s a great moment in an early scene when an anonymous analyst for a hedge fund gets fired by Jerry Kroll (its owner) not for being wrong- but for “being early”.

His crime is to to share information that  Kroll, were he to retain it, could act on to create value for himself (destroying others in the process).

The play is not making a moral point, it is  rehearsing something that people in finance know  well – “keep your mouth shut”- “knowledge is power” and the ‘common “good” is not necessarily “good business”.

For Kroll there are no coincidences, only a failure in information. His fantasy is a world that is fully known – where nothing remains a mystery. But here knowledge needs to be the privilege of the few,the property of Kroll, his hedge fund and his institute.

Sacked for blogging!

The analyst blogs his way to a P45.

Independent blogging is not something that the financial services industry encourages. It’s too disruptive to business as usual, and BAU is what pays the bills.

The hegemony of large firms – whether in banking, fund management or consultancy – is absolute. As with Kroll’s hedge fund, the concentration of wealth (and therefore power) leads to asymmetries of information, where the ordinary man is cut out of the action.

Blogging adresses asymétries and democratises information.

A diversion into pensions (bear with)

I wrote last week about my concern that the independent governance committees were in risk of losing their independence (Gregg McClymont’s written similarly). My blog, openly criticising a major insurer and the process of selection that allowed a primary distributor to become an independent adviser, has caused pain and anguish in certain quarters (for which I’m sorry). It has caused a lot of anger too (for which I am not sorry at all).

The point of being independent is to provide an alternative perspective , to prevent market failures (from Madoff to Equitable Life). When Andrew Warwick-Thompson blew the whistle on Roy Ransome of Equitable Life and its burgeoning liabilities, he was legally gagged.

Warwick-Thompson was early, Gregg is early – I would like to think that this blog is “early”too.

In my neck of the woods , the legal threats are gone, instead the gagging is implicit in phrases such as “career threatening” – it is not a matter of being right or wrong – it is just about timing- it does not “pay” to be early.


Jerry Kroll and Hilary

If you’re not early – you tend to be late

The problem with not being early- is you tend to be late. If we had been early in identifying problems with pension mis-selling then we would not have had to put things right (at such great cost). If the pensions industry had listened to those like Alan Higham and Ros Altmann who demanded reform at retirement, we would not have had the chaos that we are facing today.

If you dam a river, you hold back the free flow of water and risk a flood when the dam bursts.

If you dam information, you do much the same, when the information that is held back, becomes public, the mud flies – and sticks.

Back to the play – “the play’s the thing”!

Within the play, Hilary is sustained by praying to a God that she believes will make good happen, she thanks that God when what she considers “good” happens to her. To this belief system, she attracts Bo, who falls in love with her, the kindly but spineless Leo and ultimately Kroll himself.

Madonna- eat your heart out!

She ain’t no madonna!

The show’s publicity depicts Hilary as a Madonna with her child. This doesn’t come across in performance.

She’s no saint- infact she’s a “tart with a heart” and about a quarter of the play is spent watching her jumping in and out of bed with Spike, a loathsomely one-dimensional crony of Kroll.

Far from demeaning her, I found her sexual exploits brought Hilary to life. Having had a child at 15, I expected a victim; instead I got a woman in control of her own sexuality (and a great deal more).

It all comes right in the end

For without her, there is no alternative to Kroll. The analyst is seen no more after his dismissal, throughout the Hard Problem, information struggles to be published for fear of the damage it might cause Kroll’s Institute (ironically of learning).

There are others within the institute who are conscious of the Hard Problem, but only Hilary who is disruptive enough to address it.

For all that, the play is a comedy. For all the destruction created by his extreme materialism, Kroll fosters a department of psychology within the institute that holds onto its Carthusian principles.

Paradoxically, the man who is God-like  in business  cannot  prevent the spread of consciousness , within the Institute.

This disruption culminates in Hilary declaring publicly that there is a God (and it is not Kroll), Though what God is, is defined here as what it is not. God appears as the  alternative to  pure Newtonian science that tells us that everything can be known.

Concepts such as “good” and “God” are able to be discussed within the play through the indulgence of Kroll. Somehow they even flourish. Kroll is shown as a father and in the denouement as someone who can recognise the good in Hilary.

The idea of motherhood as an example of altruism not egotism is returned to throughout the play.

There is a  human interest sub-plot within this involving a lost daughter, an adopted daughter and a found daughter. In the context of the intellectual action, it creates a narrative structure as we move to some kind of synthesis in the respect that Hilary earns from Kroll (both as a free-thinker and a mother).

This is not King Lear, it is more the Winter’s Tale. I would like to ask Olivia Vynall (Hilary) – who has played Cordelia – how she managed the transition to Hermione.

Even though it is not a bleak play-  it has bleak scenes (such as a disastrous dinner party) which show what could happen if Hilary were not there.

But we sense that Hilary will always be there- because she is given space to be. Is Kroll redeemed or redeemer – his relationship with Hilary is left an enigma.

Nous sommes Hilary (in our dreams)

This is the play’s political dimension. Set in the context of the suppression of liberties we are experiencing in other parts of the world.

tom stoppard

Ton Stoppard – a stranger to a hairbrush!

I felt when watching that because we are a free country, where you don’t get 1000 lashes for speaking your mind, Tom Stoppard can write such a play, Neptune Investment Management can sponsor it and I can write a blog about disruption inspired by its dialectic.

Hilary surprises us, she is neither victim, student, employee or maverick, she ends the play her own woman (and a mother) – she has opened all the doors

She earns this through 100 minutes of lacerating honesty on stage.

She is a 21st century heroine that we can aspire to be. Hers an example of disruption that helps us with the Hard Problem.


Hilary and Spike

Random Disclaimer

Some people don’t like the Pension Play Pen, they don’t like this blog, they want to “turn off the tap”. Some don’t even like First Actuarial because of the disruption it is said to have created by allowing all of this to happen.

The views of this blog are the views of Henry Tapper – no one else (unless the blog says so)!

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What should employers do about pensions?


Employers pay pensions – don’t they?

It’s baked into the DNA of Government social policy that a part of the welfare system is managed by employers prepared to fund an employee benefit that provides a certain income in retirement.

So much so, that in recent meetings in Whitehall with Government policy-makers, it was taken as read that employers would look to embrace the upcoming pension freedoms and pay people pensions not just as a result of a defined benefit promise, but from any defined contribution pots that had been built up.

As I have said a number of times on this blog, most employers have no intention of establishing the drawdown mechanisms, let alone paying non-guaranteed scheme pensions from DC monies, in fact they are looking for maximum separation from responsibility for DC outcomes.

As one pension officer said to me this week “we’ve had our share of risk”.

We cannot employers from throwing in the towel. Again and again they have been dumped on and the remaining incentives to run schemes do not outweigh the commercial imperative of managing the business for the interests of all stakeholders.

Paying pensions is no longer part of the deal and if employers could attach a transfer value to all retirement statements  and discharge their liabilities by means of a lump sum, many would. Indeed many are trying to do just that.


Transferring pension risk to staff is not “risk-free”!

An employer, and an employer’s trustees, have access to good quality pension advice provided by independent consultants and delivered professionally. Here for instance is a briefing note issued to employers on the pension freedoms

From 6 April 2015 those with defined contribution (DC) pension savings will have greater flexibility and will be able to access their funds in a number of ways.

The new rules may also impact how those with defined benefit (DB) pensions will seek to take their benefits at retirement. Trustees and sponsors of all workplace pensions should decide how the new flexibilities will be reflected within their pension arrangements and how best to communicate these changes to their members.

Employers also need to consider whether the Government’s ‘guidance guarantee’ will be sufficient to enable members to reach adequate decisions, or if this should be supported by scheme-specific education programmes for members reaching retirement.

Defined Benefit schemes

Amongst other things, trustees and sponsors of DB schemes should decide:

  • Do the scheme rules need to be updated to reflect the new limits for trivial commutation and small lump sums.
  • Which, if any, of the new options should be offered within the scheme to members with money purchase pots.
  • Whether the provision of Transfer Value quotations should become part of the retirement process and if so, to what extent the requirement for members to have taken independent financial advice should be supported.

    Defined Contribution schemes (trust-based)

    Trustees and sponsors of DC schemes should decide:

    • If the new options should be incorporated within the scheme. For example, members could be given the option of taking their entire pension pot as a one-off lump sum.
    • Whether the default investment strategy should be reviewed in light of the changes. Group Personal Pension Plans / contract-based arrangements

      Sponsors of contract based pension arrangements should consider:

• Whether the default investment strategy should be reviewed in light of the changes.

Next steps

The implications of the new rules are wide-ranging and should be discussed with your First Actuarial consultant as soon as possible. First Actuarial can:

  • Help trustees and sponsors understand the implications of the options available.
  • Design suitable member communications to reflect the strategy that is adopted.
  • Assist with a review of the investment strategy for the scheme.
  • Provide financial education sessions to support members in their retirement planning.

It’s the last point that is perhaps the most interesting. It suggests that an employer should engage, educate and empower staff to take sensible decisions for themselves.

In offering financial education, an employer is sharing the information they have , with the people who will be taking on the risk. This seems an obvious thing to do.

The provision of education may in itself not be enough – education may encourage formal advice from a professional adviser, just as sixth form colleges encourage higher education.

But what should people actually do with their money?

There’s only so much time , energy and money people will spend on financial planning. People want answers to the simple question – what should I do.

Put simply, there are more questions than answers. Many of the mechanisms to unlock the pension freedoms are still to be built. People may want their money now but decisions taken in haste, can be repented at leisure.

As I have mentioned repeatedly, frustration that leads to people cashing out pension pots, could be extremely destructive. People will find the money they have liberated reduced by tax and they will struggle to reinvest with the same efficiency as had they kept money where it was.

With a potential £6bn of new money available to the over 55s in two months time, worse predators than the tax-man will be swimming around. The sharks who prey on the ill-educated and easily led, will undoubtedly be liberating pension cash into a multiplicity of plausible scams.


Frustration and short-term expediency are the enemy

But this frustration will increase unless we come up with new products that enable people to manage their retirement monies more efficiently.

“Wait and see..” may work for now

For employers preparing for the new world after April 2015, the best that can be done is to protect staff from their worst instincts and wait until new solutions appear.

The cost of employing financial experts who act with integrity and advise with independence is relatively small relative to the cost of employees making foolish decisions.

But the wait must be rewarded

I hope that within a year, we will see new options emerging, some using the existing framework of DC and DB rules and some using the new DA pensions such as CDC.

They have not appeared to date and until they do, employers should keep their staff informed, help them to avoid disastrous decisions and prepare them for the years ahead when investments , not work, will be their primary means of getting paid.



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All I want is easy access (baby)!

solid gold

Easy Action

When Marc Bolan wrote Solid Gold Easy Action in 1972, it was a smash hit , I was ten and I spent my savings to buy it

But I can’t get no satisfaction
All I want is easy action, baby

If the Treasury wanted a theme tune for Pension Freedoms they could do worse.

Sadly we are not singing about easy action , or easy access and what we are going to get in a couple of months is not going to be solid gold.

In a meeting with an (ahem) leading assurer yesterday, I asked what the service standard would be for a withdrawal from my personal pension bank account.

I could have the money, I was told, within three days.

Apparently this is in line with standard practice for the payment of trivial commutation.

The insurance industry just don’t get what the public want. Just like the banks that couldn’t get that people wanted to bank how they wanted when they wanted.

I got laughed at for suggesting that insurers should aspire to pay pension cash on demand

How much do I know
To talk out of turn
You might say that I’m young
You might say I’m unlearned
But there’s one thing I know
Though I’m younger than you
That even Jesus would never
Forgive what you do.

It took First Direct and now Metro Bank to disrupt decades of poor customer service and it will take an equally innovative and customer focussed pension provider to shake the insurers up!

metro 2

In sub-saharan Africa, they’re doing away with banks. 90% of non cash payments in Kenya are paid from mobile to mobile. In a recent study by McKinsey, the rest of us were asked to wake up and smell the Kenyan coffee.

When you phone First Direct to make a payment or check at payment has been received , you are asked if that is what you wanted and if there’s anything else they can do.

That attitude inspires the next call, sometimes I phone First Direct to get a boost in the morning!


That’s easy action! And easy access is not three working days. It is quite possible for insurers to use  liquidity in their pension process to advance payments against the sale of units and reconcile the payments the following day, meaning people have the money they want in their bank account when they want it.

The Slider

It is absolutely not good enough for pension providers to point to ISAs and say that it’s just the same there, that’s not the point, the ISA is not a flow of payments, it’s something you build cash up in!

When I sold pensions in 1980s I sold the dream of solid gold easy action – of a vast reservoir of capital that my client could draw on when they wanted. I was a visionary (I didn’t understand you had to annuitise!)

Fortunately, the friends I sold pensions to in those days won’t have to annuities and while they may not have vast reservoirs, many have built up tidy sums in their pensions, which they are understandably keen to spend.

The psychological advantage of knowing that if all else fails, you can draw against your pension from a click of the keyboard or the touch of a phone will be a great comfort to many.

The pension provider who wakes up to the idea of a pension making people feel good (not bad) will be a winner!

Solid gold 3

What a downer!

Instead of all this positive stuff, we are all insistent on running down pension freedoms as if they weren’t gold but radioactive uranium

Take this story in the FT . If the link works, you can read yourself how a plethora of pension people are warning how some people will pay too much tax on lump sum withdrawals which are treated as regular payment by HMRC. The tax will get paid back when HMRC discover the big payment was a one off.

The recent meetings of the pension select committee have been dominated of late by demands for “second lines of defence” against pension same, reckless pension expenditure and ill or non advised tax-planning.

But there have been no stories from the insurers or mastertrusts of solid gold – easy action. Instead we have had consultations, conferences and a long line of reasons why it is not possible to pay people their money in the way people want.

Born to Boogie?

Forget Kenya, forget McKinsey, we are a first world country and we can’t do a same day transfer of people’s funds from the sale of units to someone’s bank account.

Frankly this is not good enough. I know of European administrators who can and will facilitate this. Today I am speaking with a well-funded start up keen to adopt the service standards pioneered in sub-Saharan Africa so that people can paid on demand in the UK.

I can’t get no satisfaction , all I want is easy access, baby..


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When independence becomes “inter-dependence”

barnett AE

This blog addresses  Barnett Waddingham on its AE Solution . For those not familiar with these things- it is a packaged solution that provides you with Standard Life’s Good to Go workplace pension. I have written about Good to Go which is available from as are thirteen comparable plans – all of which are worthy an employer’s attention. As I say on here Good to Go is a good option

I have previously criticised these preferred partner deals.  The £5,000 + it costs to employ Barnett Waddingham makes Standard Life’s proposition not  quite so good to go

But the real issue is that the one solution stop takes “employer engagement” out of the equation.In the final analysis, employers decide the workplace pension their staff use for auto-enrolment not advisers.

It is like paying £5,000 to a priest to absolve you for future sins!


Frankly I would expect an independent actuarial consultancy to be more ambitious than to throw its hat in with a single insurer.

ralph logo

Eye on the prize


I am confused by why Barnett Waddingham want to tie their proposition to the Standard Life mast. their eye is on a prize but it it at the top of the mountain?

But that confusion is nothing to what I now feel when opening my digital  in Corporate Adviser to read that Pitman Trustees have just appointed Barnett Waddingham to be the independent investment consultant to Standard Life’s various mastertrusts.


A helping hand?


So what bit of the word independent can Barnett Waddingham claim to own?

No doubt they will argue that what happens on the investment consulting side of the Chinese Wall has nothing to do with what happens on the AE consulting side and that they were selected by Pitmans for Standard Life Trustees not by Standard Life themselves.

But as Leonard Cohen sings,

“Ring the bells that still can ring

Forget your perfect offering

There is a crack, a crack, a crack in everything –

That’s how the light gets in”.

The crack in this is as wide as it gets and I do not like what the light reveals.

The relationship between a product distributor and a product manufacturer must be transparent. If it is not transparent, then trust is lost and trust in pensions is easy to lose and hard to regain.

I cannot see how Barnett Waddingham can have a strategic alliance with Standard Life as a key distributor and be the independent investment adviser to its master trust.

The relationship is not independent – it is inter-dependent. The conflicts that inter-dependency creates could and should be avoided. I do not welcome this appointment.


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Why we will have to wait for our freedom.

target pensions

A prospect of market failure

The sentence may have been over-turned but the prisoner is not free. At best he can wander the prison yard but the prison gates remain locked and even when they open , the pension will struggle to reintegrate with everyday finance.

Such is the Pension Plowman’s short-term forecast; a forecast of market failure like the early days following the last pension revolution, the introduction of the personal pension in 1987.


Innovation in all the wrong places

Yes we have innovation, but it’s in all the wrong places. Channel 4’s Dispatches, aired last night painted a picture where imaginative scams sold to  an unwary public, scams as diverse as the freehold of parking lots in Dubai and the rental of storage in London. These are tangible assets which everyday people can understand, assets, like time-share that have a high initial attraction but a short shelf life.

I once met an Egyptian who tried to sell me farming land – ideal for the growth of water melons in Abu Simbel. The melons would have been very wet, the land was 300m under Lake Aswam and had not been cultivated for decades.



No sign of investment in the right places

We are entering a period of mass empowerment, made possible by the internet. If your radiator goes wrong, go to YouTube. Everything from window boxes to Cash ISAs can be purchased quicker and cheaper on the internet.

But the empowerment to digital guidance has been slow to touch pensions. Moving a the pace of an occupational Trustee Board, members of defined benefit pension schemes await annual pension statements dropped through the letter box. DC schemes can be managed online so long as you are prepared to navigate clunky websites past pages of risk warnings, password verifications and overly complicated screens of information. The user experience is a poor third to compliance and data security. With a few honourable exceptions, touchscreen applications do not get a look in.

The vision of an ATM which not only can tell you your pension balance but can provide you with cash for immediate spending seems as far off as ever.

Rather than build pension dashboards that allow people to assess their life expectancy, the chances of their money running out and monitor the progress of investments, the leading pension providers are still in thrall to regulated advisers. The comfort of advised drawdown where risk is transferred to advisers is proving too strong for many insurers. Empowerment is not improving, pension management remains a closed shop.


No sign of new products

Chris Noon of Hymans Robertson, a regular on these pages, has predicted that £6bn of pension money will be walking out of the prison gates in the second quarter of 2015.

Explaining the £6billion figure, Noon split it into three: the usual £10-15billion of retirement money will be taken out faster than before due to the relative unpopularity of annuities; around 5 per cent of the £100billion of available money in pension pots will be withdrawn ahead of retirement; and some people in final salary schemes will transfer out to get their hands on savings early. (Tanya Graham – this is Money)

But the products being developed to receive this money are not right. Put aside the abysmal scams, the master trusts being launched by actuarial consultancies and IFAs are simply not capable of taking the money.

The regulations only allow money to transfer into a master trust if your employer is participating. As mentioned in this blog employers want to signpost but separate. The master trust retains the link with the employer and is not fit for the purpose of freeing the pension

The only current alternative is a personal pension  (or as people insist on calling them, as self-invested personal pension). Most people do not want to self invest, most people want a simple investment strategy which makes sense; they want a trusted investment manager and they want to get on with their lives.

But the cost of operating a personal pension (relative to the cost of a master trust) are proving a further barrier to change. While existing insurers are sitting on their existing book of business and trusting the advisers, the new personal pension providers are nowhere to be seen. We know, we have approached them and they tell us that the costs, in terms of Solvency II reserving, make running personal pensions too risky a prospect.

So the five options presenting themselves all look pretty rum

  1. Take your money out of jail- invest as you like – but pay big tax
  2. Try to take money to a master trust – and see if your employer will help out
  3. Transfer a new personal pension drawdown option (Alliance Bernstein’s retirement bridge being the one option).
  4. Keep your money with your existing pension provider and hope that they offer you something better in time.
  5. If you have the money (and many advisers will be blunt with you if you haven’t) pay the costs of advised drawdown.

The obvious alternative

To break with the past and offer a new future for pensions money, we need a new option as radical as personal pensions were in 1987. I do not see the alternative in the employer sponsored master trust nor in the isolation of a personal pension but in a new pooling vehicle where the structure is governed by the Regulator (FCA/tPR), where investment funds can be managed for the consumer not the manager and where every day people have the rights to their pension property which was the great innovation of the 1987 reforms.

Whether we call these new structures CDC or ROFs or something new, they need to be made available within the next twelve months. Critically, the reserving costs of such arrangements must be low, the access to such vehicles must be universal and the outcomes be determined by a consensus of stakeholders including the fund owners – the Regulator- fund managers and the members.

Critically, we must break the dependency on employers and advisers which has dominated the design of DC product in the past 30 years. Employers want nothing to do with the spending and investment decisions of their former employees, advisers should be an option not a necessity.

Will this happen?

It is only the Government than create these new structures. They have created one already (the PPF), NEST could convert to one, though I think it is working well in the accumulation phase and is better creating one. Insurance Companies, Fund Managers, even Advisers, could be managers of these collective arrangements (though most likely it would take partnerships between all three to deliver.

When we get these structures in place, then the fancy member interfaces can flourish. People will be able to control how they take money and have the same access to information as I have with my First Direct Bank Account.

This will only happen with leadership. Sadly, the man who has led us for five years may not lead us beyond April. He has left a legacy within the Pension Schemes Bill which should be enacted this parliamentary term, for the vehicles we need to be put in place.

Let us hope that before April 2020, we will be enjoying the pension freedoms with confidence in our pensions restored.



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Get your BR19 as your first step to being “Pension Wise”

Pension Wise

Treasury now in charge of “Pension Wisdom”.

Another Monday, another set of pension headlines. The Treasury announce that the Guidance Guarantee is no more and hereafter the delivery mechanism for the help we’ll be getting at retirement will be called “Pension Wise: Your money. Your choice”.

A very political slogan which the Treasury regard as their brand.

You can register at  to get on the fast track for pension guidance.  But woe betide you if you brand yourself “pension wise” or offer to make anyone “pension wise ” (unless of course you are not on the Treasury’s approved supplier list.

The Pension Plowman speaks advisedly. I am not pension wise, never have been- never will be. I’m just plowing my furrow (Paul Lewis is my compliance officer)

Hargreaves Lansdowne publish important research to make us pension ****.

Meanwhile Tom McPhail has managed to steal some of the Treasury’s thunder by releasing research from a freedom of information request that suggests 2m of us retiring between 2016 and 20120 won’t get the full state pension.

(Presumably this is not being “pensions wise” because Tom was wise before the event -the Treasury news being embargoed!)

Tom’s news is not a surprise for those “in the know” because they applied for a BR19 from the DWP telling them their likely entitlement under the old rules. Going forward there will be new rules which won’t likely give much more than the old rules as the new state pension won’t cost much more than the old two tier structure of Basic State Pension and Second State Pension.

What will happen is that a COD (contracting out deduction) will reduce your full entitlement if you were in a contracted out occupational pension scheme, elected to contract out using a personal pension or did not pay your full national insurance (class 4 contributions) because you were self-employed .

The old basic state pension was £115 pw+ and the new system is £155 pw – and most people will be somewhere in the middle. The hope is that as more people pay full rate national insurance for longer , more people will get the full £155.

Those people who are getting considerably less than £155 pw from 2016 may have an incomplete NI record because of time living abroad and here the complicated rules about transferability of pension rights between countries kicks in.

Why is all this important? Well there are 52 weeks in a year making £155pw worth just over £8000pa. To buy an annuity that increases like the state pension you would need a personal pension pot of around £215,000 which (I suspect) rather dwarfs the value of your personal pensions (average pot today around £30,000).

Being Pension Wise means knowing the value of your options

If you went into the Pension Antiques roadshow with your personal pension in one hand and your state pension in another , you might be surprised to have your (full) state pension valued (typically) at seven times the value of your private pension.

Which is why Hargreaves Lansdowne’s piece of research is actually rather more important than Pension Wise. Well done Tom Mcphail for your impeccable timing!

Being Pension Stupid means taking stupid decisions which leave you pension poor

Ironically , it is because we don’t understand the value of the various types of pensions that we take foolish decisions. Self-employed people are not taught that the reduced rate national insurance contributions they pay, come at the cost of reduced state pension and they have no idea of the value of the state pension they have given up.

Many people who contracted out into state pensions , remained contracted out well beyond the point where it was economically viable for them to do so. Only when they retire will they be able to compare the value of their rebate only personal pension with the Contracting Out Deduction (and the comparison won’t generally favour the personal pension). Similarly older woman, who defaulted into the lower stamp, will only find the cost of this decision when they compare their pension to what they’d have got if they’d paid the man’s rate. Hopefully they will still be able to make up some or all of the difference with a special payment (on decent terms).

This pension freedom stuff is sexy but it is not the only show in town

All this complicated stuff, close to retirement is generally being ignored in the pensions debate. Even in Tom’s statements on the radio this morning, the main thrust was about the importance of the decision about what to do with the personal pension money.

I have yet to hear any adviser suggest that one of the best uses for tax-free cash (arising today) is to purchase basic state pension for tomorrow (if you are close to your state retirement age).

There is of course an issue here, it is a further part of the problems with pensions advice. No one is getting paid for advice on state pensions because no-one is paying for individual pensions advice. Employer advice is centring (properly) on the employer’s schemes, IFAs and benefit consultants are busy guiding people into vertically integrated master trusts and SIPPs while “Pensions Wise” has an agenda to help with pension freedoms.

It will be up to TPAS and the Citizens Advice Bureaux and any other approved suppliers to inform people of options surrounding state pensions, but as with this morning’s announcements, the battle between the noise surrounding the immediate satisfaction from private pension freedom, may drown out the really important news about people’s state pensions.

Get your BR19 here

I’d urge anyone who is approaching retirement now to use the DWP’s BR19 service. It should have been an on-line service by now but it is – as manual services go, pretty quick and informative and accurate.

If you want to apply to know your state pension rights, you can do so by clicking here

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Let’s play fantasy CIO at NEST!


NEST has invited  all of us to play “fantasy CIO” and create a default investment strategy for its members to and through retirement.

If you’re prepared to get to page 118 of the consultation paper, you are asked as question 18 of the consultation…

If you were designing a default drawdown strategy for NEST members, how would you do it?

We believe such approaches will require innovation and are therefore interested in solutions that address the following issues:

governance – including setting pay-out rules

asset allocation and risk management flexibility for members

incorporation of insurance for market and longevity risk

An answer to these questions requires a great teal of time, intellectual energy and the skill and knowledge collected over a lifetime. It is reasonable to expect that NEST, with its £600 DWP loan, might have the financial resources to pay for  advice on this.

In our formal response to NEST ,which Pension PlayPen has published and sent to NEST, we stated we would not answer these questions.

But perhaps I can break ranks with the Pension PlayPen and put down my personal views here!  To be fair to NEST- the questions are the right ones, they underpin the establishment of a collective drawdown arrangement and could equally be the foundations of a CDC strategy.

So here is the Pension Plowman’s bid to be Fantasy CIO of NEST!


We need to start with a statement of investment philosophy; what are we trying to do with the money at our disposal?

Statement of investment philosophy

We aim to provide a regular income stream which targets pre-agreed payments (a target pension) and meets its target in normal circumstances. In exceptional circumstances, regular payments can be higher or lower than targeted.

We aim to provide this income for the whole of a member’s life. We will provide this insurance from within the fund if possible but members will have the opportunity to buy a guaranteed annuity to secure this certainty at any time. Members will have the right to take their money from the fund either to another qualifying pension or to their bank account.

Investment principles

We will invest the money on the basis that the fund has no end-point. Payments to members will be met from cashflows from those moving into the investment pool and from the income from the assets into which the fund is investing. Typically these assets will be equities which we intend to hold for the long term. Other income producing assets which have similar properties to equities (property for instance) may also be considered.

The fund will not aim to buy and sell its assets, its intention will be to allow the assets to provide the income to meet the objective of the fund. Because these assets participate in the real economy, we would hope that they will participate in the growth of the economy and produce an increasing income stream which will allow the target pension to increase in time. The hope is that these increases will protect people’s spending power.

We will set the level of target payments (pension) at an initial amount that we (as managers) feel confident will be too high 50% of the time and too low 50% of the time. Put another way, in a perfect world, it would be our best guess of what we could pay out.

We are expecting to be wrong 99% of the time- only one year in a hundred, might we be absolutely right. So we will ask people to accept tolerances. Providing we are 90% or more right at any time, we expect our payments to be on target, it is only when we see the fund more than 10% below or above target, that we may make an adjustment to pay-outs and even then , these adjustments will be temporary.

target pensions

Risk sharing and risk pooling

The assets of the pool are discreet to the people receiving the pension, they are not sharing the risk with those accumulating the pension. We favour a discrete pool because of our concern that those coming from behind may have to subsidise those receiving payments today. Of course the opposite may turn out to be true. In any event, we prefer not to share the risks between generations, this has caused trouble in other countries (Netherlands).

Ideally, we would hope to meet the payments for those living beyond the normal life expectancy of those within the investment pool from the funds bequeathed by those who die younger than expected. This needs to be properly explained to people joining the pool. Undoubtedly this explanation will mean that some people who have short life expectancies won’t join the pool and perhaps some with healthy lifestyles will be enthusiasts- this is unavoidable and a healthy state of affairs.

Nonetheless, there will be losers in the pooling as well as winners and we can only manage this by being quite frank about the way the pool operates.


Governance and Communication

This brings us on to the Governance of the scheme. Obviously this needs to be expert and should draw upon the investment , actuarial and communicative expertise of a high quality management team.

It is absolutely critical, that the progress of the fund – both in terms of its investment performance and in terms of the solvency from the pooling, is clearly stated so that public confidence- at all levels – is maintained.

The publication of statistics on the numbers joining the pool and leaving the pool either through death or through voluntary transfer is of critical importance. There should be no attempt to hide these numbers to protect confidence, a run on the fund is more likely to happen because of opaque governance than transparent.

This simple approach to managing the fund must not be mistaken for a naive approach. The governance of the fund must be every bit as rigorous with this simple strategy as it would be were it more complex. Attention to detail- the costs of transactions, the management of key metrics such as life expectancy and the proper accounting of the fund must be to the highest standards.

Member flexibilities

This approach is not in itself designed to give members the  flexibility of the “Pension Freedoms”.

This approach aims to provide people who want a pension with something more than they would get by selling their pot to get a guaranteed annuity. It does so by being more flexible in its payment system which allows it to invest in assets that should provide better long term returns.

People who are not happy with this “extra risk” can leave the pool and buy an annuity.

Similarly some people will want to withdraw all or some of their money to spend the money as a lump sum. The right to your property is key – people will be able to withdraw money, at reasonable notice, to spend as they please.

For many “investors” who like to choose how their money is allocated and perhaps make their own investments, this pooling approach will be too restrictive. They will either not join or leave to “go their own way”.  We anticipate these outflows will be matched by people joining the pool who have decided not to self-invest any more.

For many people, the idea of being in a pool where others may benefit from their dying early will be unacceptable. This is of course how defined benefit pension schemes work and how annuities work , but we accept that there are people who will want to manage their own longevity

Insuring the financial risks surrounding long-term care.

Finally, we are aware that for some people , the prospect of long-term care is extremely frightening and the prospect of not being able to afford to take care of oneself financially, unbearable. For such people we consider insurance the best solution. Within the payment system operated by the scheme, a deduction for long-term care will be available. This separately insured arrangement will be entirely voluntary and can be entered into by the individual as part of the pension scheme, or as a free standing arrangement arranged outside the scheme.

The invoice is in the post boys!

noisy nest


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The future of retirement – Pension PlayPen responds to NEST

nest-185x114hi res playpen


Why Pension PlayPen is responding

Pension PlayPen is reluctantly responding to NEST’s consultation; reluctantly as we have been asked these questions before in a number of different guises. The report is long and so is this response.

We are responding because NEST is important and it is taking the issues around retirement seriously. There are many providers who need to be addressing these issues more urgently than NEST, we would have preferred to have spent our time consulting with those insurers. Part of the reason for making this response, is to use it in our conversations with other providers to help them create the product that Britain’s middle-saving retirees need.

We hope that this adds something to the debate!


Some general comments on NEST

In the past, NEST has operated what Pension PlayPen has considered an inadequate “at retirement service” for its members. This has been ok since very few people have retired from NEST and we sensed that the annuity carousel they have created was a pro-tem measure. We hope that this consultation will lead to a wholesale re-vamp both of the NEST at retirement strategy and the investment strategy both in the accumulation phase and (should it wish to provide its members a means of spending their pot, in the consumption phase.

We recognise that until 2017, when NEST is allowed to receive transfers, it will, for those wishing to exercise pension freedoms, be pretty useless. Most people who have been saving into NEST will only have been doing so for a matter of months and with the cap on contributions, it is unlikely that more than a handful of people will have their primary DC savings in NEST.

So the debate we are having in 2015, is theoretical, it is not until 2017 that any meaningful sums can be transferred into NEST, nor indeed – the amounts people have saved into NEST, be transferred into another retirement savings plan to be consumed elsewhere.

Our reluctance to respond is that Pension PlayPen could more constructively be having this conversation with insurers who have large amounts in accumulation and can take transfers-in.

It has been pointed out that NEST could in time become a general aggregator into which people who had not saved with NEST could take their DC pots and use NEST’s administration and investment strategies to help them spend their money and make their money go further. For this to happen, NEST would need to change structure or the laws governing occupational trusts change. As we understand it, unless there is a change in the law to allow people to join a master-trust without their employer participating in that trust, they cannot access it. We are aware that there is an exception to this – the self-employed – who are allowed to join an accumulate savings in NEST but we are not aware they can join NEST to spend their savings.

In order for NEST to become a general aggregator to the Nation, it would have to become a Regulatory Own Fund (like the Pension Protection Fund). We think this could happen (and have said so in the past), it may well be that NEST remains a master trust to accumulate but has a separate structure – a Regulatory Own Fund structure- for decumulation. This would happen not just because of demands from consumers (fuelled by the Pension Freedoms) but because this is about the only way that a collective approach to spending (including longevity pooling) is going to work,


Changing retirement patterns

How will changing retirement patterns and provision affect what members need?

The report rightly points out that differing socio-economic groups want differing things. The question is what they need. They need enough money to keep them off the State and they want much more than that. If we are answering from the DWP’s perspective, the National Insurance Fund needs people to be self-sufficient so they do not need total reliance on state benefits. People want to have a good time, spend what they want, when they want. NEST has to work out which master it is serving, We do not see NEST as a wealth management unit- we see it as a means to protect the National Insurance Fund, so it should be aiming to give people a supplementary pension (a funded non-guaranteed version of S2P)


How will changing retirement patterns and provision affect what employers want from DC schemes in the future?

The abolition of the fixed retirement age and the increasingly lower amounts arising from DB schemes, mean that employers will in future have to promote DC savings as the insurance people have when they choose to leave work when they want to wind down. The temptation for employers will be to overplay the short term (“you’ll be fine – look at all that money!”) and play down the longer term when failing health and spent savings are not so attractive.


Financial circumstances in retirement

We agree with the trends identified in this chapter. Our sister company, First Actuarial is involved in Financial Education in the workplace. It provides holistic education, helping employees to bring together the resources from private savings (including equity in property), DB (including state) and DC benefits.

Increasingly this work is involving the use of Digital Guidance (what elsewhere has been called a pension dashboard). Increasingly we see digital tools helping people to model their financial futures based on learnings about inflation, investment returns, the liabilities of house ownership, of day to day living and the unknowns- long term care needs and dependency in extreme old age.

We cannot foresee any changes to these trends but we recognise that change is constant, we need a flexible approach to meet changing needs and DC design must help people to take control of their retirement wealth- better.


What conclusion s should be drawn from the evidence on spending and what else needs to be considered.

The chapter is very good. The central conclusion that people do not spend differently because they are retired is obvious but needs to be said. The problem is that we assume that because people have less chance of generating income from work, we must guarantee income from their saving. As the chapter suggests some people are hoarders and never spend to their means, some are profligate and over spend but most people are money saving experts who spend to their means, budget and plan.

For all three groups there are different answers. Those who want a high degree of certainty will look at guaranteed income solutions and more carefree people will avoid such solutions (and probably run out of money. People in the middle will accept a degree of uncertainty in a trade-off that has upside in greater returns on saving.

Financial Planners tell us that most people place themselves in the middle.

There is a further consideration, extreme poverty among people who have no rights to anything. These are people- often immigrants – who have little right to a state pension here or from elsewhere for whom we – as a society – have an obligation to keep from extreme hardship. It concerns us that their savings in NEST may be their only savings and that they are to be treated as the vast majority (despite their differing circumstances). We have read little about this group and know little about their spending patterns. Since NEST has probably a large number of such people on its books, we think it should spend time looking at their special needs.

We would welcome money spent by the DWP understanding the needs of this group and are glad that the consultation addresses this issue,


How can DC design align itself to general spending patterns?

Given that most people fall in the middle and are prepared to accept some risk (e.g. lower levels of guarantee) for more reward, collective solutions seem sensible. We know that there is a herd mentality to saving from the high take up of default options. This is not stupid- there is wisdom in the crowd. Similarly there is likely to be a default position which most people would accept, in terms of risk and reward in the investment of monies in decumulation.

We think that the problem with the old system was it channelled people towards an extreme position- the guaranteed annuity – which people rejected. We think the other extreme- absolute freedom – is equally unappealing. What needs to emerge is a collective approach that provides people with more income, better property rights in exchange for the loss of absolute certainty.


How are savers likely to act under the new freedoms?

As the report says, people can express their preferences but we should be wary of predicting their behaviour. Given most people have a poor understanding of how long they’ll live, how long their money will last, the risks of taking income from a volatile investment and the costs of the unexpected (long term care from incapacity), there is a strong argument not to give people any freedom.

There needs to be a guided path that meets the needs of most people- a default solution around which those who do not know what they want can gather. Extreme solutions (annuities and bank accounts) exist, but what savers are looking for is the middle way. Behaviours will be shaped by the emergence of that middle way. The middle way will not emerge organically for many years. Speaking recently with Mark Hoban MP, he talked of a “five or ten year bloodbath of failure” to get there.

In order for a middle way to emerge, leadership needs to be shown. People will respond to strong leadership from people who they trust – Martin and Paul Lewis, Steve Webb, Ros Altmann- to name a few. NEST can also show leadership by getting it right.


Member behaviour risks that providers need to manage

We have just said there needs to be leadership. This needs to be shown not just by NEST but by other providers. The bias that is most prevalent in people’s saving patterns is created by advice. Financial advisers do not generally give independent advice. The advice is skewed to suit their purposes. Typically they recommend solutions that earn them money and only recommend solutions like NEST- when there is no money to be earned by alternative strategies.

But IFAs show leadership, they are great influencers/salespeople. In the absence of leadership elsewhere, people will follow what leaders tell them to do- even when it is not in their best interest to do so.

Providers are conflicted. IFAs are their distributors and they can no longer treat them as their agents. Infact providers bend over backwards to please advisers so that they are not liable for the advice but see their products getting used.

The only way for this cycle of poor behaviours to be broken is for new leaders to emerge who promote product that is genuinely unbiased and is in the best interests of the consumer.

This delicate balance between letting a consensus default emerge organically and showing leadership to stop a blood bath of biased advice (not to mention scams) is one that we need to achieve in 2015. Otherwise we will fall back into chaos as we did in the years following the last great change- the introduction of personal pensions in 1987.


Member behaviour risks needing to be managed

A mark of leadership is strength of conviction and “good leadership” needs to have conviction for the right reasons. NEST has not always shown conviction in its behaviour. The wretched decision to pander to political pressure and introduce an investment strategy for young savers that focussed on low volatility is such an example. Here good sense lost out to political show-boating. There was no evidence that people would have jumped out of NEST if they’d been exposed to volatility when young and there still isn’t.

This is relevant to this argument. What people want (as has been observed in the consultation) is everything. They want guarantees of high growth and the opportunity to take money how they want when they want. They want inflation protection and they’d like protection for spouses and dependents too. But they know as well as we do, that you can’t have it all. Leadership is needed to help them understand that. Leadership is needed- as with the construction of accumulation defaults – to manage the risks of “present bias” and “certainty bias” as well as the hosts of risks associated with running a growth strategy for people in the early years of retirement.

If providers are not prepared to be showing leadership and managing these risks, they are not doing their (well paid) jobs. By “Providers” we mean the owners of master trusts, insurance companies, trustees, IGCs and advisers who are vertically integrated into these roles.


Other risks (than those listed) in managing funds in retirement

There is a general risk for all providers and trustees which is not spelt out. It is the risk of them getting it wrong (“fuck up risk” as we call it). This risk is associated with trust. If a football team plays badly and the manager is trusted, he can explain why things went wrong, take the blame and come out stronger. So long as it doesn’t happen again and again when people lose trust. If things go wrong and the manager is seen to blame someone else, then trust can easily be lost.

What is important is accountability. Much of the distrust of financial services has resulted in people saying things, those things not happening and there being no one left to take account. Even worse, the blame has been passed from place to place to the infuriation of the public.

The risk I’d add to the list is “accountability”, if the public sees another financial product with no one accountable for its delivery, they will walk away. It is again a matter of leadership.


What gets engagement for DC Savers?

We should not despair! Millions tune in to watch Martin Lewis has a prime-time TV slot, millions use his web-site. People are not lazy about money, they just want to deal with people who are on their side.

Martin Lewis has proved it can be done. Alvin Hall proved it could be done at Morrisions, First Actuarial prove it can be done.

Key to getting people to believe you are on their side is to demonstrate independence and integrity. Also key is to be funny (engaging) and relevant (content and delivery).

Many people under the age of 30 do not even watch TV anymore, all their engagement with information is through a phone or tablet or laptop. Even at school they are learning more from the websites they are directed to than they are in class.

These kids are the retirees of 2065 but those retiring now have different ways of engaging. The trusted source of information is the workplace and if it’s not the workplace, it’s a providers. Because at least employers and insurance companies are going to be around in a few years’ time and the people who you talk to who are working for such institutions are taken to have independence and integrity.

TPAS has a similar reputation, a reputation which will hopefully be enhanced by its delivering the guidance guarantee.

But all generations are learning to use technology in one way or another and the techniques by which people engage with Candy Crush should tell us how we can get engagement with DC. Gamification is popular because it rewards people instantly for the tiny steps (moving from screen to screen etc.). Social media is engaging as it allows people to shout about their minor triumphs (“I’ve just beaten Barcelona on FIFA”).

For people to be able to engage with their DC pensions, they are going to have to be as accessible as CandyCrush or Twitter and they are going to have to compete with them for their time and attention.

We live in a digital age where TV is already old-fashioned, the idea that we will be learning from what drops through our letter boxes in ten year’s time is an odd one. Already some of us are more likely to open an email than a letter.


How can we help mitigate the risks of cognitive decline among the oldest?

It is helpful sometimes for providers of financial services to take a step back. Car manufacturers are not responsible for the use of cars by those too old to drive.

The responsibility for the financial decisions of those in cognitive decline passes within a family to the person fittest to act under a power of attorney. If there is no-one to do this, then a lawyer is generally appointed. In extreme cases, there is no one, in which case there is only the social services provided by the State.

Lock down of financial products in later age is sensible. Many will buy an annuity when they feel they can no longer be bothered or able to manage drawdown. Many will never consider themselves cognitively able to manage their freedoms and opt for a collective or guaranteed solution (the point of the DA agenda).

So long as the option to lock down into an annuity or transfer into a collective decumulation scheme is there, we should do no more (as providers). At this point our social duties towards the truly elderly need to take over.


What is the role of default strategies in the new regime?

Default strategies perform the same role in the new world as they did in the old – they are how Providers show leadership to those who are unable or unwilling to lead themselves.


Should we have more than one default?

By definition there can only be one default – most people use it. There can be a number of core strategies that suit different types of people and they can lead to different places – cashing out- guarantee purchase- pure equity drawdown etc..

However the point of a default is to pave the way for most people and most people do not want to be confused by “different types of most people”. If we had a system of financial guidance that worked like the NHS so that people did what they were told, we could have triage. But we don’t.

We don’t get people to form into orderly queues based on market segmentation and so there can only be one default, the rest is down to choice.


A default retirement age?

Most people like order in their life. They want break points which are given to them. So they know when to go to school, when to go to college, get a job, retire…the only one that they won’t know is death.

There is nothing wrong with this. There’s nothing wrong with a state retirement age so long as people know it’s a guide to behaviour not a social imperative. Most people know it’s their life and not the Government’s and those who simply want to be told when to retire are discovering that isn’t happening any more.

So the concept of a default retirement age will decline in time, unless there is another change in the rotation of these things (which is quite likely). We can only plan for what we know today and we have a default retirement age – let’s keep using it.

As said above,let’s try to stick to the one default!


Should purchasing an annuity income be part of retirement planning?

We purchase annuity income every time we pay national insurance, this is nothing special. The issue is whether we should be forced to exchange our retirement savings for retirement income. Until recently the answer was yes. At the budget, the Chancellor changed that so no one needed to buy an annuity or even have drawdown as income.

We are where we are and international comparisons are not that helpful. We simply want to accept the rules have changed and show leadership in creating a new structure which ultimately will be determined by freedom of choice among those retiring.


Fixed term, iterative purchase and phased annuities?

These are choices, helpful choices- that will appeal to some, but they are not the main event. Those wishing to explore these choices should be able to do so, either by internet shopping or via an adviser. The most that a scheme like NEST can do, is to make people aware of their existence, their purpose and where people can find out more about them.

Frankly there is not time in a Guidance Guarantee session to look at this detail of choice, these need to be searched for.


Deferred annuities?

The problems with deferred annuities were properly demonstrated with the demise of the Equitable Life. If a deferred annuity market emerges, it will be because of demand but we have seen no demand for long term care products (which are generally based on deferred annuities) and unless there is a change in consumer behaviours, we see deferred annuities as having a very limited market.


Other ways for member to hedge longevity risk?

Members can choose to hedge longevity risk by joining a longevity pool,, currently no such pools exist but they could create themselves if we create Collective DC schemes into which people transfer their DC pots.


Does investing through retirement have advantages?

For the average person, a strategy that provides a decent balance between growth and security is sensible. Growth comes from investment, security from insurance. Purchasing insurance for upwards of 30 years (which is the aim of an annuity) is not what most people want to do or need to do. The uncertainty of income in their working life is substantial, it is unreasonable to suppose that at the point of retirement they turn totally risk-averse.

The long term advantages of a growth strategy underpinning retirement income include the steady income stream available from real assets (property and equities), linking the retirement income stream to GDP (what underpins long-term property and equity income growth) and the avoidance of political interference that can artificially depress the debt market (see QE).

For those totally risk averse, the option of the annuity is always there as is the option to spend your pot (the other extreme). We would argue that the default option should be invested for the future.


Ideas for designing a default drawdown strategy for NEST

NEST is a commercial organisation that competes in the market with other providers. It is not appropriate for it to expect consultants to provide this service gratis. If NEST wants advice on how to design its default, it should pay for it.


Risk Sharing

NEST should not consider sharing risks between those currently saving for retirement and future generations of savers. It should consider offering those who arrive at retirement, the option for them to pool investment risk and have their assets managed collectively.


Combining risk sharing and normal DC

It would not be a bad idea for NEST to set up a separate CDC scheme for employers who wanted to operate their workplace pension as a CDC plan though we think that most employers would still work within the DC framework. We think that CDC is more likely to be popular as an in retirement option with people transferring DC benefits into a pool at retirement.

People are rightly nervous about the risks of risk-sharing between generations and for that reason, employers will be concerned about their use as the default workplace option.





Henry Tapper

January 10th 2015












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How can this be?

how can this be

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

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

The problem

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

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

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


The proposal

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

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


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

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


What would happen?

The adviser, was suggesting he take an oversight fee

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

The fund managers would take their management charges

Those processing the transactions would take their charges

The insurance company would charge for the wrapper

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


It nearly worked…

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

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

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

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


But not quite.

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

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

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


What could I do?

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

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

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

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


What could he do?

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

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



No cause for redress!

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

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

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


So he’s thinking about it…

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


Why does this still happen?

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

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How far can guidance go?

guidance 2

Guidance Technology?

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

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

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

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

Guidance Technology applied to individual decision making at retirement

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

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

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

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

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

Does it work – do we have evidence elsewhere?

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

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

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

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

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


Making it fun

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

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

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

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


What’s stopping us?

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

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

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


Leadership is needed to bring about change.

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

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

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

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




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goat nudging


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

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

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


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

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

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

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

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

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

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


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

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

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


No matter how good these new master trusts might look,

no matter the efficiency of low cost transitioning-

high quality fiduciary management-

expert corporate trusteeship-

and world class administration –

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

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


There are of course alternative strategies that could be employed.

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

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

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

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

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

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


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

inertia selling


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

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

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



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

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

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


There are good buyers…

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

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

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

So what has gone wrong?

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

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

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

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

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

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

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

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

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

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

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


The new workplace pension market

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

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

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

A new type of customer

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

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

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


Haves and have nots

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

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

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

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

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

How can such employers become “haves”?




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A tax on a tax


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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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



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“Collaboration” is not a dirty word

F1rst Actuarial hi-res





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

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


Why we chose to work with, not compete with IFAs

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

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

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

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

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

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


The positive impact of the RDR

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

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


Auto-enrolment makes it easier to collaborate than compete

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

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

pension capacity

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


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

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

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

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

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

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

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

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

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


So how can we work with YOU in 2015?


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

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

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

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


Establishing a credible service has been hard work

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

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

Building on two years in the market

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

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

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

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

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

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


A new approach to solving problems for small employers

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

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

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

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



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What you want and what you get- Happy Christmas!

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

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

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

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

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

Ok the “young man” bit is peripheral.

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

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

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

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

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

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

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Beware the vanity master trust


community award winner

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

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

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

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

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

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

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

Easy come and easy go

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

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

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

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

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

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

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

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The PPF – our great escape!


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

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

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

So what’s the PPF?

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

The PPF pays two levels of compensation:

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

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

How’s the Pension Protection Fund doing?

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

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

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

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

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

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

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

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

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

And here’s the American comparison

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

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

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

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

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

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

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

(Thanks to Per Andelius for this)

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

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

There are lessons for us to learn.

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


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


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


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Pension PlayPen wins AccountingWeb community award

accounting web

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

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

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

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

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

The Pitch

the pitch

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

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

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

The big picture


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

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

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

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

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

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

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

mother Christmas

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




No more self-regarding monkey business please!


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

laugh or cry

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

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

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

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

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

To put this in terms we can all understood.

Lets look at an example.

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

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

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

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

In theory

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

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

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

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

In theory

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

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

But in fact…

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

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

The 80/20 rule

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

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

Did the insurance companies know?

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

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

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

Is this a victimless crime?

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

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

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

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

And what of that advisory promise?

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

The real scandal

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

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

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

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

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

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

A whopping great lie

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

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

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

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

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

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What should we pay for the annuity guarantee?


mrage 2

The publication of the FCA’s market study on annuities has not met with much enthusiasm. Consumerists do not think it has gone far enough to punish lazy insurers. Those on the sell side find it hard to understand what the brave new world of pension dashboards, hybrid and collective products and non-advised drawdown will look like.

The FCA’s problem is that while they now have a good idea what has gone wrong, they cannot predict what will go right. Specifically they have no market data to show how outcomes will be improved in the post 2015 world of unrestricted drawdown, synthetic annuities and collective DC.

Can we rely on projections – must we wait to see outcomes?

Nor will they for many years, for outcome based analysis is by definition retrospective. The projections that surrounded the last pensions revolution, the introduction of personal pensions in 1987 assumed products that might produce a  13% pa return net of charges. As the charges on most personal pensions were at least 2% pa (and for paid up policies – often as high as 7% pa, these were heroic assumptions that could only hold good in times of high inflation and strong real growth in the economy.

These were the conditions prevailing in 1987 (at least before November of that year) and they continued to the end of the millenium. But since 2000, there has been no growth in the capital value of the FTSE 100 and inflation is struggling to stay positive.

Those 13% assumptions for net growth now look surreal, but at the time I remember people worrying that they would undercook the omelette!

There has been some pressure to  achieve transparency in the  cost of accumulating a pension pot and there will be more as the FCA roles out its instructions to IGCs on how to value the costs of funds in which their DC policyholders are invested.

Can we get transparency to know what goes into the annuity price?

But the pricing of annuities remains impenetrable. We simply do not know enough about what factors impact the annuity rate, what the true return would be were insurers not having to retain monies to meet the various requirements of shareholders and regulators.

Alan Higham, who is now at Fidelity (an American insurer) reckons that UK annuities are priced 20% lower than US annuities taking comparable risks in the underlying investments.

This would suggest either a retention from the shareholder, outrageous inefficiencies in operation or that insurers are having to keep too much in regulatory reserves. The trouble is , even the FCA find it hard to get to the bottom of it.

Having spoken to people who I trust in insurers such as L&G and Aviva and having been shown the internal rates of return calculations on the annuity books, I do not think the insurers are shaving the rates to line their pockets. Numerous studies going back to Orzag and Murtagh in the 1990s suggest that insurers are efficient in the way they run annuities.

Can we relax the regulatory burden on annuity providers to bring down prices?

I guess that the cost of the annuity is in the Guarantee and that that cost can only be reduced by a relaxation in the reserving that insurers need to make, to meet the kind of black-swan events that did for the Equitable Life.

The price of the Guarantee that is provided by annuities is probably reasonable. The second question is whether it is a price that people are prepared to pay.

When people do the maths, they realise that they are insuring themselves against events they cannot envisage, their living beyond 100, the risk of deflation (priced in the gilt rate) and all manner of risks that could upset an insurance company in the next 40 years (which need money to be set aside for).

People buying annuities are buying into a degree of certainty that they would never contemplate in other areas of their lives. Would we only work for an employer that could guarantee us a wage indefinitely? Would we invest in a market that promised us a copper bottomed return on our money over 40+ years, would we want to bet on our friends and families dying before a certain age?

The reckless conservatism of the middle aged?

These are the things that insurance companies have to price into their annuity rates. I wonder whether purchasing a life annuity with an estimated payment duration in excess of 30 years (and this goes for most annuities sold to people between 55 and 60, is such a smart thing to do. If there is market intervention , it may be to warn people about the reckless conservatism of such purchasing.

How will non-guaranteed pension rates compare?

There is an alternative, which is to take out these guarantees and see what rate becomes available where the degree of certainty is reduced. What would be the impact of meeting promises in full 95 times out of a hundred or 97 times. How would that improve the rate compared with a 100% guarantee?

People will of course need to know what the implications are for those 5 or 3 times when the promise can be met, to know the value of their investment at risk. If the worst that might happen might be a 10% loss in the value of the income stream – ok, if 50% – not ok.

Nevertheless, the publication of non-guaranteed pension rates arising from an unguaranteed   alternative to annuities would be the best way to calculate the real cost of the annuity guarantee.

Until we see what the actual returns offered via the hybrid products and the synthetic annuities and most of all by CDC, actually are. Until we can assess the level of risk being taken on by those products we cannot really assess the real cost of annuities.

Is there a proxy for the non guaranteed rate that we can use today?

But in the short term we can look for proxies. We can look for instance at the rate that the Government Actuary requires us to use to value our defined benefit pensions. It says that it costs £20 to pay £1 of escalating pension compared to £28 to buy £1 of comparable pension as an insured annuity.

From this we can assume that the price of the annuity is equivalent to the difference in these rates. If you bought an annuity of £1000 pa, you would be paying £800 more than an occupational scheme would to secure the income.

Are GAD “scheme pension and individual rates” a reasonable proxy?

I am sure that this calculation is open to challenge on a number of fronts, but at least the GAD numbers are trying to compare apples with apples.

There are of course problems with receiving income from occupational pension schemes. Some would rather trust an insurance company’s pension to their company’s promise (for instance). But were you given the choice of a non-guaranteed rate which gave you £50 a year for every £1000 you had or one that gave you around £35, you would be asking whether the margin between the two rates was justified by the risk taken.

When will the FCA market move from “interim to final”?

That is the issue for the FCA, they cannot be definitive. This is only an interim report. There is a peice of the jigsaw missing.

The problem for the FCA is also a problem for people looking to make purchasing decision in the next 2 years over their pensions. It is that we  don’t know what the real price of the annuity is as we don’t know what the price of the drawdown, hybrid drawdown, synthetic annuity or CDC plan is going to be.

It makes it very difficult for advisers to make definitive recommendations and it makes for tough times for CAB and TPAS in advising people of their options (the guidance guarantee).

It makes it difficult but not impossible. In order for us to understand the possible we need to project, understand what might be. That means considering what these new options might be like and keeping an open mind to them.

Is best advice to delay taking a definitive course of action?

What the FCA paper does, and does skilfully, is to remind people that what their market study tells them in 2014 is that there is an incomplete market, that we don’t know the cost of annuities because we don’t know the price of the new products.

What the Financial Services Industry needs to do right now, is to price the new products and that is a terrifying task to existing players. It is practically impossible to re-price an existing drawdown proposition in the face of competition you can only imagine, For new entrants the question is whether to price products on “what we can get away with” or on the true price to meet reasonable returns.

What is the crucial next step?

That is the job of pricing actuaries working with pensions experts who know the market. It is perhaps the biggest challenge facing the pensions industry over the next twelve months and how the industry meets this challenge will determine the extent to which the Budget Pension Reforms lead to sustainably better outcomes or are just a mirage that disappears as you get down the road.

mrage 2

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Why I’ll be taking my chances in the death pool

homer death

There’s a lot of talk around about the unfairness of defined benefit pensions. Some say it is unfair to give the same pension to a “sick man” as a “well woman” and that the only fair way to calculate a pension is to medically underwrite the pensioner.

Some say that every sick man should take his money from the pool – “it’s every (sick) man for himself”.

I’m thinking about this at the moment.

I started out thinking …

How does an actuary think about death?

There are two ways they think about death; “individually and collectively”  but neither way brings much comfort.

Actuaries know a fair deal about death- at least statistically. But they do not concern themselves about the moral arguments surrounding mortality – that is not- and should not be – their business.

The formulation “mean brutish and short” was applied to the life of  the poor in the 18th century, the past 200 years has seen  not just a general improvement in mortality, but a narrowing of the gap between rich and poor, upper and lower, white and blue collar.

Even so, statistically the poor continue to live shorter (generally) than the rich and whether you consider that unfair or not, the social security systems , in as far as they provide insurance against old age, offer a subsidy from poor to rich.

This is troublesome to those who see redistribution as a tidal flow from rich to poor. But the job of the statistician is to observe, not comment.

Statisticians agree that a disproportionate amount per capita is allocated to the brutally mean and short lifespans of the lower orders. They are higher maintenance- they produce less, spend more of the NHS’ budget and have more resort to social security.

So poor people spend more of the kitty early on, and rich people spend more in later life – principally because they stick around. This is why our welfare state is considered fair,

All of this is empirically provable. There is nothing fair or unfair about the statistics – they just are. For every actuarial  model there will be winners and losers.

Actuaries don’t think about you. You are a part of their data-set. An actuary will always be conflicted in influencing your decision, by doing so he distorts the perfect equilibrium of the model. The model is designed to be fair.

death eqaul

One day we will all die by natural causes; death will be managed by health and safety. On this day, an actuary will be able to tell you what fair looks like individually as well as collectively.

One actuary summed up this grim vision with the observation

“We all die the same, it is only the timing of our dying that matters”.

In an ideal actuarial world, fair shares would be universal.

That day may be approaching as the dispersal of death-dates in the UK is decreasing.  Death is becoming an equal opportunity employer. Death is getting the diversity agenda.

The NHS and our welfare system aim to get Death dealing with rich and poor, male and female , black and white in the same way. In a perfect world we’d all die fair.

But Death is not there yet. Death can still cheat all predictions letting a 20 a day grannie live into her 90s. killing our youngsters. There’s sill no justice in mortality.

There are those who believe they can predict death’s fickle sickle. We will soon be able to map our genome to understand statistical probabilities of our demise with certainty.

These people think that accidental death will become an outlier 0n the stochastic map. With “health and safety ” – Grim Reaper’s little helper, “death from natural causes” will welcome us all at the Pearly Gates.

Some people will take a “Badass villain death match” with a computer and buy income on a computer’s bet on their likely day of death. It’s an anti-social thing to do.

If we all did it – we’d have no societal aspect to our pension schemes. “Every man or woman for himself” works in a world of universal conformity where natural causes dictate and health and safety manages.

For me Health and Safety sucks, I put no faith in death by natural causes. I know that I will get more than or less than what I put in, the chances of me getting fair shares from my retirement savings approximate to zero.


Actuaries don’t behave with emotion but people do!

So I don’t buy this spurious certainty offered by statistics. Death is still my final frontier and I’m not having a medical report telling me my lifespan. I’m not having a medical to tell me I’m getting a better annuity rate than the next man because I lie about my alcohol consumption.

I think of Yeats when I think of the mean-spirit of annuities

I call those works extravagance of breath
That are not suited for such men as come
proud, open-eyed and laughing to the tomb.

And I set against this  Bruce Springsteen’s

Outside there are just winners and losers..                                     but don’t get caught on the wrong side of that line

We can control what we do alive but even the Boss can’t circumvent death’s time-line.

Nor can I ignore the consequences of living forever, I need “e-ternity insurance” which gives to others if I die and takes from others if I live.

Neither an annuity or bare drawdown is the answer for my DNA.

People who think they can outsource their longevity to an insurance company or investment bank are making a pact with the devil. There is no nobility in this – no mutuality. The single annuitant dies alone.

It may be I die tomorrow, I may live a long long time, but I’m not going to some gypsy fortune teller of a medic to get an impaired life annuity.

Neither am I betting on my imminent demise and ignoring longevity risk.

bury head here

It may be that I. a reformed smoker, heavy drinker and bon-viveur will not make it to my 70th birthday. I may get a short-term kick from a spend spend spend approach to my money.

But I have a stubborn lust for life. I may need that defined benefit pension into my 90s and beyond.

When I live, I’ll take the income, enjoy the certainty of my pension without fear of tomorrow. And that includes the whining generation Y-Z etc.

Thousands rally for climate action and a carbon price



Where my head is at

I’ll take my chances in the pool of death. I will stick with my small rights in my DB scheme.

And  I won’t be buying an impaired life annuity with my DB rights or my DC savings.



If my need for certainty increases,  I’ll buy into more death pools – buy extra state pension , put my DC money into CDC decumulation.

I’m not taking a “Badass villain death match” with a death dating system. I will happily share.

When I’m gone, the death pool can have my money.

Actuaries can divi out my share to those left behind!

I’ll walk proud, open-eyed and laughing to the tomb.


Old is as old does

Hope I die before I get old.







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The coffin slams shut on annuities – but will they stalk the night?

zombie 1

There was no smoking gun. Annuities hare not bad value but- through poor purchasing, they have delivered poor outcomes.

This is my 20 word precis of the 100 page document which you can read for yourself here.

This conclusion has not delighted the journalists looking for a story of consumer detriment and unlimited redress. Annuities are not going to be the next PPI, the insurers are not going to be hung out to dry (as the banks are), the budgetary pension reforms will bring about changes in pensions which will sort the problem in time.”

At the heart of this document we find this statement

 profitability analysis is consistent with the findings of our previous thematic review, which found some differences in profitability in different parts of the market but did not find clear evidence of excessive profits overall.

and again…

In conclusion, our findings show that despite the poor perceived value, the right annuity, when purchased on the open market, may still represent the most appropriate retirement income product for some consumers

The coffin lid slams shut on mass market annuities. The corpse has been embalmed and laid to rest. May it rest in peace.

But something stirs in the dead of night…

In 2013, 353,000 annuities were sold, two thirds of which were standard annuities.

For these purchasers, the realisation that they must live with the corpse for the rest of their days, is resonant of the “night of the living dead”,

zombie 2



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Hats off to all workplace pension providers



I’ve referred earlier this week to an excellent article by Kim North in Money Marketing in which she points to the ongoing work Scottish Widows have been doing on the participation of women in workplace pensions. In the same article she argues that there is a moral argument for insurers to continue participating in auto-enrolment.

The link is there, auto-enrolment is a national project of significance way beyond the short-term p/l of a few financial services players. The long-term advantages in terms of being associated with a real success story (including the increased participation of women in the pension system, dwarfs the short-term difficulties some insurers are having adapting to a new type of customer.

Kim North and Bridget Greenwood (who shared the post with me) have met a steady stream of negative comments – all from men – both on the MM site and on the Linked In pages where the article appears.

I don’t think it’s a coincidence that it’s two ladies against dozens of men. That’s what it’s like to be female in financial services. I don’t think that it’s strange that two women are arguing from a moral basis and that the men are arguing that they are uncommercial and sentimental. After all this is a man’s world where the inequalities between male and female participation in the workplace has long been considered a side issue.

Purely on moral grounds, insurers have a moral responsibility, if only to their brand, to continue to insure and not withdraw from a project which is clearly working, in terms of inclusion and popular support.

I post below a second argument that I have taken from a thread with a number of comments on it. You can judge for yourself whether these comments are pragmatic or patronising. The thread is here. It’s on the “auto-enrolment  and workplace pensions mastermind” Linked In group which is well worth joining.


work and pensions

The first time I had to consider this was in 2010 when I sat in a room at the DWP with all the insurers who were then active in the workplace. It was the time of the Yeandle/Boulding/Johnson review of auto-enrolment. With one exception (L&G), the insurers said they did not intend to play in AE at the micro end.
At the time I thought this was posturing. Technology would catch up and they would find a way to deliver workplace pensions economically on an industrial scale. I have always thought that the market will require insurers to adapt to a new world and create product that can satisfy the needs of micro employers. I still think this will happen.

Since then, many insurers have come out with statements of intent, Scottish Widows say they intend to win 10,000 new customers, Standard Life’s good to go product is available to all but the smallest employers and organisations such as Royal London have revitalised their businesses to face the challenge ahead.

They recognise that the compulsory adoption of workplace pensions by all UK employers is a challenge that they need to be a part of. They are morally committed to participation.

I would consider it an act of wilful cowardice, of moral funk, if those insurers who have made commitments to the market, withdrew from those commitments. Unless that is, the assurance on which those commitments were undertaken are removed.

This is one of the reasons I want Government to be fair about NEST and about how they construct the workplace pension directory.

I am not saying that organisations such as Prudential, Zurich and RSA who were once key players in the SME space, are cowards, they made their intentions clear early on and have stuck to their guns. But organisations who have made it clear they are in it for the long haul, need to stick by their promise to the market – they know who they are!

Steve and Scott (friends and participants in the thread), the world will not be a better place for the withdrawal of current participants, the standard annuity market is an example of what can happen when diversity is lost, competition and innovation go out the window – the consumer suffers,

It is encouraging to see serious new entrants into the pension market- such as Friendly Pensions and a number of smaller master trusts making use of the low barriers to entry. They will succeed if good enough and we will promote them – if they are good enough.

We will continue to support the mainstream insurers as well as the bigger master trusts because a market without choice is a barren market for employers.

I would hope that all who care about the UK workplace pension market will join with Kim and Bridget in encouraging the on gong participation of the insurers’

It is important that the insurers who may be wavering, be encouraged to stay. If those who advise employers on auto-enrolment say that the workplace pension does not matter, then workplace pension providers will feel inclined not to bother. Actually we make too little of the ongoing participation of Friends and Aviva and Aegon and Royal London and Legal & General and Standard Life and indeed the many insurers not open to new business who have done work at the top end of the market (BlackRock, Fidelity,Zurich).

workplace pensions 2


Without these organisations, the burden on employers and their payrolls would have been immeasurably heavier to the extent that the artifice of auto-enrolment might well have cracked.

I will include the Regulator in this congratulatory roll-call as Charles Counsel and his team have done magnificently well to get us to where we are.

To see the auto-enrolment implementation project through, we need all of the above but particularly we need the ongoing support of the insurers to provide diversity, ease the capacity crunch and ensure that the high-standards of governance they are displaying (through their IGCs) are adopted across the workplace pension market.


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Clarity needed on NEST’s finances


Payola 2

The Pension Regulator has announced it intends to introduce a Directory of workplace pensions. The criteria for inclusion will be that the workplace pension must meet the Quality Standards being introduced from 2015 and that the workplace will be universally available to SMEs and micros going forward.

What is meant by “available ” is not defined. As the following article published in Money Marketing demonstrates, it is becoming practice among workplace pension providers to charge an implementation and sometimes a maintenance cost to the employer for the use of a workplace pension. You can read Sam Broadbent’s article here.


The one notable exception to the rule is NEST (though NOW are assuming a self-imposed public service obligation to follow NEST’s example – for now).

NEST does not charge fees for its services to employers, it just charges them to the tax-payer. It has been some time since I have seen management accounts of NEST and I don’t know the current level of drawdown of its debt to the DWP. I would be very surprised if it is anywhere close to break even and I can’t imagine that its current charging structure will recover debt anytime soon (for projected numbers read on).

But while its rivals either implement or contemplate employer charges, NEST can continue on its way, burning a hole in the tax-payer’s pocket at the tax-payer’s expense.

The Pension Regulator is going to have to consider whether its directory can properly contain anyone but NEST. After all, anyone can set up a master trust, charge an obscene implementation fee for its use, be included on the Directory and just waive its fee when it wants the business. It’s an old trick.

But if the Regulator cottons on and further requires the Directory to only contain workplace pensions which are free to employers at the point of entry and going forward, then- as Money Marketing point out – we may soon have a market of one.

Supporters of NEST will claim that this is as it should be and that the point of enrolling over a million SMEs and Micros was not to introduce choice but to manage the money through a central state control fund. If that is what we as a nation want, I think we should be straight with providers who are competing with NEST and tell them that NEST is going to get special status going forward.

I do not think this is what any political party wants (though I am sure there are some within the DWP and Treasury as seeing the only way of recovering the debt to the DWP (somewhere between £239m* and £650m).

According to the most recent projections (2012-15 NEST business plan), NEST expects to have 2014 revenues of £12m and expenditure of £109m -running costs and £4m capital expenditure this year. In other words it will make an operating loss of around £100

* this is the most recently published level of drawdown (in the 2013 published accounts)


The Payola Regulator?

So if NEST comes out top of the pops in the Pension Regulator’s Directory, then I hope a few people will point that it’s #1 status has been bought at a price that makes payola look like peanuts. (For those not using the link- Payola was a chart-rigging scandal which involved record companies artificially buying a spot on the hit-parade).

payola graphic

The tPR Directory- if not a qualitative directory-  will be just a list – a hit parade published by a department with every reason to keep it’s in-house band at number one!

But at least the idea of a Directory gets us to ask the question, “just how competitive is the workplace pension market”.

I would argue that so long as NEST is able to drawdown on its loan and write business at a loss, this is not a true market.

Further market distortion in the pipeline?

Conspiracy theorists will look at NEST’s current “consultation” on “post-retirement options” with some concern. If NEST are listening to Gregg McClymont and his talk of “super-aggregators”, they will be encouraged that there might be a chink of light in the tunnel.

If NEST becomes the aggregator of small mature pension pots and is given the mantle of “aggregator in chief” for the small nations pots, if NEST is funded to set up a system of pension payments that fills the gap between SIPPs and cashing-out, then NEST may have a viable commercial future.

NEST are being very coy about this consultation, Ostensibly it is about getting the public’s ideas for how it should offer the pension freedoms, but it looks very much like a Government consultation in its presentation and I’m more than a little suspicious of it.



Call to political parties to state their post election position on NEST’s finances

Yesterday I asked Gregg McClymont what the plan for NEST was. He was a bit shifty in his response, citing imminent reprisals from Ed Balls if he were to offer his thoughts. We don’t get much from the current Government on how they see NEST being viable.

And so long as we have NEST as a tax-payer toxic market disrupter which is at one moment a public service and another a commercial provider, we will have a distorted market.

We might consider that NEST is the only fruit and all of us peddling choice to SMEs and micros should pack up our e-trestles and go home.

We might point out that without a competitive market, the stress on NEST could be so great that NEST breaks under the strain, the £650m loan drawdown rate is busted and auto-enrolment (for smaller employers) falls apart.

A third way would be for Government to sit down and think through its current strategy towards choice in the workplace, confirm whether it is encouraging choice and then treat commercial providers fairly. That means making sure that NEST’s subsidy is not used to give them preferential status on directories and that NEST is forced to offer its services at the commercial rate.

If I were offering Gregg McClymont advice, I would suggest that he and Ed Balls sit down prior to the issuing of Labour’s pension manifesto and work out what its position is. I would suggest that George Osborne and whoever the conservatives have in mind to take over from Webb do the same.

Finally I would like to see Steve Webb, prior to April 2015 make a clear statement of what the DWP’s own debt recovery plan is for the taxpayer, so those of us involved in advising on workplace pensions, know what is in store both for NEST users and those who  have chosen to stay with commercial providers.


Tim Jones

NEST’s CEO is #1 but is the chart rigged?


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Clap along if you feel that happiness is the truth!


Clap along if you feel like a room without a roof!
Clap along if you feel that happiness is the truth!
Clap along if you know what happiness is to you!
Clap along if you feel like that’s what you want to do!


Three good  things happened to me yesterday

Firstly – subject to beating the Accies, Yeovil Town have a dream tie coming up in a few weeks.

Yeovil Town will play Manchester United at Huish Park on January 3rd for a place in the 4th round of the FA cup. It made me happy just writing that

It has been a poor season for us so far and if we can win our home game , this will set Christmas up nicely for Yeovil and her solid supporters.


Secondly  I went to a posh pension conference yesterday morning and heard the OECD compare our pension system to those of other members. It was enlightening, I felt I understood what we were doing better, looking at auto-enrolment in an international perspective.


Thirdly, on the train home from Basingstoke, I read a really fine statement in Money Marketing from someone I don’t know- but now wish I did – Kim North. You can read it here.

Kim doesn’t look like she’s done 30 years bird in financial services , but looking at her Linked In CV, I can see she’s been a big influencer in parts of the advice chain, I know nothing about.

She points towards a great project (which I’d forgotten about – the Scottish in Widows women in pensions report, the 2014 report in the series is here.


What links Yeovil Town, the OECD ,Kim and the Scottish Widows report is that they all point me in the same direction. They are all linked by Yeovil Town’s magnificent motto

Achieve by Unity

The last vestiges of the mutuality that inspired some Scots to set up a mutual to look after the widows of Scotland, Kim’s resolution in declaring auto-enrolment a moral crusade which creates greater fairness and in which our insurers have a moral obligation to participate and the grand scope of the OECD to promote best practice across borders and continents, is in stark contrast to the miserable behaviour on which I reported yesterday.

The unquenchable fire to achieve something great, though a common purpose, is at the heart of the British Welfare System which is an example to the world. We have much to learn from others and the OECD demonstrates our short-comings as well as illuminating our successes. Yeovil Town – a failing club, a failing town – pulls itself up by the boot-strings every Sunday morning and sets about achieving by unity. It has and it will. Kim North, after 30 years in financial services is still campaigning for greater fairness for women and greater choice in workplace pensions.

“Sunshine she’s here, you can take a break”


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Pensions too boring for DWP select committee member


Nigel Mills MP, who sits on the DWP’s Pension Select committee is so committed to his task that he chose to turn up to a DWP committee meeting as a part of the recent pensions debate. He used the time to  play Candy Crush Saga, which was filmed and the film published by the Sun.

If you sign up to the Sun you can watch him playing live!  But like Nigel , you may have better things to do , so you can read the detail in the Guardian here.

Is this a sadder reflection on the state of the pension debate or on Mr Mills?

Those of us who work in pensions are rather keen to get policy right and have a right to be disappointed when someone appointed to govern our pensions chooses to play a silly game on a hand-held device rather than focus on what is being debated.

But having read the  Hansard accounts on  a recent debate in the House, I am not that surprised,  there were a total of 33 new clauses and 72 amendments tabled in one go

The Pension Minister ,Steve Webb, had to spend most of his speech defending the number of amendments from “time-challenged” Conservatives. We now know  what at least one of the MPs was spending his time on (have a read -it’s all on the link).

I wrote last month about former Treasury Secretary, Mark Hoban’s view that the pension industry should look to gaming for ideas on how to engage, educate and empower members, perhaps this was what Nigel had in mind. As XTC sang

We’re only making plans for Nigel, Nigel just needs a helping hand!



MPs lose the right to criticise those in pensions when they are caught playing Candy Crush during pension debates. Having given of our time to help shape the legislative amendments to the Pension Schemes Bill,  we have every right to feel let down when members of our own select committee do not pay attention to the nitty-gritty.

If we want a really dumbed down pension system, we can have compulsion and the kind of pension taxes people get in Australia. But instead we have a more challenging system that gives people pension freedoms.

If the Guardian report is to be believed, it was these very freedoms (on which George Osborne will be campaigning) that Nigel Mills was supposed to be debating.

These freedoms do not come cheap. They require the expense of time and effort. That goes for the people benefiting from them, the people managing them and the people governing them.

Most of us spend many hours doing deeply boring work, it is what we are paid for. If I was found in a meeting playing Candy Crush Saga, I would expect to be on disciplinary, Nigel Mills will probably get away with nothing more than a ribbing.

I could  discuss with Nigel Mills why he preferred Candy Crush Saga to focussing on his job in hand this  Wednesday when we appear on the same panel at a Prospect Debate on “the Future of UK pensions”.

But I’ll resist the temptation, I’d prefer to discuss the agenda (that can be found on the link above). After all, it’s what I’m paid to do.

Candy Addiction


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Why employers pay no attention to the pension


Darren Say has written a very contentious article that you can read here

Darren opens by repeating three statements on pensions

…employers don’t want world class pensions, they just want the problem to comply with AE legislation to be taken off their hands – AE Pension ‘Expert’ view

…I’d rather pay fines than pay the extortionate fees I’m being quoted by greedy IFA’s using scare tactics to get me to comply with legislation, typical of the pensions industry to rip us off again – Director/Owner of a 80 strong workforce

I don’t trust pensions, they offer poor value and charges are taken even though I’ve had no growth in over 10 years, I’d rather invest in property – Pension scheme member view


Darren’s contention is that this disillusionment is not surprising as…

” it’s not actually a world class pension product that is being sold to meet the needs of savers, but scare tactics to comply with legislation, coupled with a big fee?”

I agree with Darren when he argues that the point of workplace pensions is to deliver a world class pensions saving product.

The big idea of auto-enrolment is to deliver this world class product/service through the workplace. The trouble is that by appointing the employer to select the right pension , you are asking a lot.

The OFT are right!


We’re finding that most employers have no reason to pay attention to the pension, because they have better things to do (and no motivation to change).

Advisers are doing little to engage, educate or empower staff about workplace pensions


Advisers will advise where they get paid, they have no confidence that they will be paid to advise on the pension by an employer who is distrustful of the advice, the product and doesn’t see why it has to pick up the bill in the first place.

We cannot expect advisers to be proactive in this process, they are reactive to the needs of their clients, they neither want or have the capacity to change  the world.


In order for the world to change, we are going to motivate employers to do things differently. Employers can (and I hope will) change behaviour because of pressure

1. From employees

2. From the Regulator

3. From self-interest

1. Staff pressure

My bet is that in time, enough  people who pay into the pensions (the staff) will start asking some questions about where their money is going, that employers will be forced to retrofit some kind of audit trail to demonstrate they have complied with their duties.

It takes a thick-skinned employer to pay 8% of most  of his staff’s pensions into a plan about which he knows or cares nothing about.

It takes a really dumb employer to admit it.

Since the cost of getting the pension decision right is pretty small and the consequences of losing the support of staff quite large, I expect to see employer pressure requiring employers to pay attention to the pension .


2. Regulatory pressure

If the Regulator was as strenuous in enforcing best practice in the choice of pensions as it was in enforcing auto-enrolment duties, things would be different.

It is a scandal that the Government’s education program has concentrated entirely on “being in” and has ignored the decision on what people should be “into”.

There will come a time -presumably after the revamp of regulation on DC plans in 2015 and again in 2016, when the Regulator turns its sites on the poor quality workplace pensions being used for auto-enrolment.

Many of the current plans still carry “toxic” features such as member borne commission. Many more have hidden charges that render them unsuitable for the mass market.


3. Enlightened self-interest

There comes a point when the major (perhaps the only) beneficiary of the workplace pension will be the person who decides upon the plan. Not surprisingly, the Regulator is worried by this state of affairs, seeing the decision as  “retail”.

There is no justification for this concern. The same dynamic is at play with 50 employee companies as with 1 employee companies, neither have a clue how to choose a pension , neither have much recourse to advice and neither are prepared to pay to get the education to be empowered to take the decision.


Darren’s definition of insanity

So we have the ridiculous situation of a multi-million pound advisory industry focussed on workforce assessments, opt-out procedures and statutory communications with a pittance being spent on developing the main event – the workplace pensions on which our hopes depend.

Darren lands on the Einstein statement


Until employers stop buying the wrong kind of pensions for their staff, until staff get default product which really works or the education to take informed decisions, we will continue – insanely – to perpetuate the same mistakes.

Posted in dc pensions, pension playpen, pensions, smelly | Tagged , , , , , , , , , , , , | 2 Comments

Why can’t we know what we pay for “fund management”?

'You're doing a little better since we deworsified your portfolio.'

We have the right to know what we are paying for funds. The cost of a fund can best be defined as the difference between what you would have received from a theoretical return on the assets in the fund and the actual return achieved on those assets.

So if the return, based purely in the movement in prices of the assets was 10% and the fund returns 8%, the cost of the fund is 2%. Taking percentages out of this, you would have paid £2,000 for every £100,000 you invested in the fund.

The word “theoretical” is important. You cannot invest without costs and investing through a fund can be cheaper than a DIY approach, especially if you are looking to actively manage the fund.

Very few people can be bothered to manage their own portfolio so the issue on charges and costs is not about a race to the bottom. It is about “value for money”.


If a second  manager can manage the same assets for £1,000 rather than £2,000, then it’s up to the more expensive manager to justify the extra cost. To demonstrate value for the money.

The Investment Management Association (IMA) has been under pressure to get their members to give us a fair means to compare fund management costs. However it has failed and is failing to get this done.

In a series of hard-hitting articles, fund manager Alan Miller and his wife Gina, have turned from poacher to gamekeeper , asking the questions of their trade body, that we as consumers have difficulty in asking.

This is their latest article, printed by kind permission of the authors (with some formatting changes). It is worth reading by anyone involved in purchasing funds either on their own behalf or on behalf of others.


The original of this article can be found here

Outraged by the industry mouthpiece’s (IMA) response to the recent damning Financial Services Consumer Panel (FSCP) report ‘Investment Costs – More Than Meets the Eye’, the True and Fair Campaign is issuing this statement pointing out how the IMA is misleading the public, regulator, politicians and journalists.

Instead of accepting the constructive criticism in the FSCP Report, written by respected experts and academics, and putting every effort into speedy, practical and understandable solutions, it appears the IMA is intent on being disingenuous by issuing false statements

“The IMA has now developed a new measure that tells consumers, in pounds and pence, exactly how much a unit in a fund grew over the course of a year and how much it cost to achieve that performance. Every penny spent by the fund is included in this figure and so it provides a simple, accessible, all-inclusive measure of all costs. Nothing is hidden and nothing is left out.
“Pounds and pence disclosure goes beyond any regulatory or legal requirement and is a big step forwards for consumer understanding. We expect it to be in place next spring, but there is more to do. The IMA is working on ways to measure and explain the significance of both portfolio turnover and spread and the part they play in returns”.
We invite readers to judge how the IMA proposed cost table
below tallies with its claims – where are the costs in £?


It is not all the costs, and in addition, publishing this table in the back of the
annual report one year after purchase, will amount to it still being hidden.

Here are the cost disclosures explained:

  1. The new measure is NOT ‘in pounds and pence’.
    It is a % per unit figure which has not been converted into pounds and pence. Consumers will need to know how many units they hold in order to convert this into any meaningful pounds and pence figure.
  2.  The new measure does NOT show exactly ‘how much it cost to achieve that performance’.
  3. Transaction costs or performance fees are shown separately rather than included in the
    reported ‘operating costs’. Fundamentally, it does not include the element of transaction
    costs known as spreads which can be an additional 85% of the total costs within funds
  4. It also completely excludes ALL transaction costs within a fund held by another fund (known as a “fund of fund”). The new measure is therefore NOT showing ‘every penny spent by the fund’.
  5. The new measure is NOT ‘simple’ The table contains 13 different numbers, 14 if the fund has performance fees. To work out the actual cost in pounds and pence requires the operating charges to be added to the disclosed ‘direct’ transaction costs and the performance fees, and then the undisclosed ‘indirect’ transaction costs to be calculated by the investor themselves, and then converted into pounds and pence by multiplying the number of units held.
  6. The new measure is NOT “accessible’. The IMA has indicated their half-baked disclosure will be within a fund’s annual statements. These statements are usually received by investors 12 –18 months AFTER they invest and few investors ever look at these statements anyway.
  7. It is FALSE that ‘nothing is hidden and nothing is left out’
    As stated in point 2 above, the IMA’s proposed solution leaves out up to 85% of the overall transaction costs according to recent CASS Business School research and has not even bothered to add up these costs or many other costs to produce a single reported number, or converted this number into a consumer understandable pounds and pence charge; we therefore challenge that it is a “simple, accessible, all-inclusive measure of costs”.
  8. It is disingenuous for the IMA to say that it is ‘working on ways to measure and explain the significance of both portfolio turnover and spread and the part they play in returns’ when it was the IMA itself that stopped its members having to report fund turnover in June 2012.
  9. Two years later and t h e y h a v e n o t p r o p o s e d a definitive measure. Furthermore, the IMA apparently wants to put in meaningless statements in fact sheets that the fund turnover was ‘High’ or ‘Low” with no proper quantification of the .

The True and Fair Campaign is also surprised that the dossier of other negative findings within theFSCP Report has not been seriously acknowledged by the industry or debated. This independent, academic report confirms what the Campaign has been saying for three years and notable esteemed academics and commentators have been saying for many more years:
 full charges can be up to 4x the headline charges
 there is no genuine price competition
 funds can arbitrarily choose how to allocate many costs
 economies of scale tend not to benefit the consumer
 performance reporting is misleading
 closet indexation is rife.
Gina Miller, Founder of SCM Direct & the True and Fair Campaign said, “We have known for years that the industry has been failing investors and the FSCP Report outlines these failings in black and white. The public, politicians, media and regulators should not be misled any longer by the industry association which continues to tow an anti-consumer line.

“We believe the majority of fund managers want to do the right thing rather than have their reputation for honesty and ethics crucified by false and misleading statements from their industry mouthpiece, the IMA.

“Rather than tackling industry failings and embracing change the IMA continues to harm the UK investment industry and treat British investors with distain. Continuing to deny investors fundamental rights and being treated fairly and with respect must not be left to deeply conflicted industry trade bodies.”


Posted in FSA, governance, life insurance, pension playpen, pensions, Retirement, steve webb | Tagged , , , , , , , , , , , , , , , | 4 Comments

Tis’ the season to get merry! Pension Play Pen Parties tonight!

mother Christmas


Deck the halls with bells and Holly!

Fancy a Carol this Christmas?


Holly and Carol have a particularly hard time at this time . They are decked and sung and  the butt of too many gags.

All the best jobs go to us guys- Rudolf (red nosed) , Santa (kissing Mummy) not to mention assorted elves, shepherds and wise men.

The institutional sexism of Christmas goes unchallenged. Mother Claus is left basting the turkey , as back-room as Mary in her crib.

Attempts to replace Christ with the X-factor (as in Xmas) are unnecessary, for all the plangent homilies on “thought for the day” advent is a glide-path to the debauchery of the Christmas break.

Let’s face it , we see Christmas as an opportunity for the Lords of misrule to reassert the ancient barbaric sexist tradition of the office party, the 24 hour mega-binge of Christmas day and the extended hangover that culminates in the mother of all piss-ups- New Years.

Christmas is what we do after a year behaving ourselves.  But can we please move on! I want a merry Christmas but I don’t do Dickens!

I do the Santa Brand Book


And when I say that the Pension Play Pen is having its Christmas Party tonight in the Counting House from 6pm (usual Gallery room at the back)….

I mean that I will be standing at the bar, buying anyone a drink who cares to turn up. And we will drink and sing and flirt and do those stupid things we don’t do in the other 11 months (well not much).

And we won’t regress into some Victorian parlour!

We do these things because that’s what Christmas is about. I don’t care about the religious framework, I don’t care about the other 11 months of well-measured and well-governed respectability. I want my Christmas to be a riot!

And  I want to give it back to the women. I don’t hold with this nonsense that sees the assertion of Victorian values (e.g . women do the work, men get all the fun). I want Carol and Holly putting sticking it to us grinches.

So my pre-Christmas resolution is to have fun, share fun and make it fun for the gals! I’m going to start wrapping my own presents, topping and tailing my own sprouts and I’m going to make damned sure that the women in my life get as much of a holiday as I do.

The Pension Play Pen party will toast the the women (and the men) who have made 2014 so great.

So if you are in the City tonight, before you go home, make your way to Bank, and let’s have a knees up!




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It’s not pensions that are rubbish- it’s the way we picture them



How google pictures St Andrews day today – so easy!


I spent some time last week expressing my dis-satisfaction  with the DC Governance and the irrelevance of most DC trustees. It is easy to throw stones….

What is also needed is someone to mend the greenhouse to make it fit to nurture..

We need to find a way of talking about our pension plans which makes sense to the people who use them and depend on them to convert pension saving into pension spending.

I often hear people say that if we could only get rid of the word “pension”, it would be problem solved. It wouldn’t, the problem is not with the word but with “confidence”, if people were confident they were in a good pension , then the’d be proud of the word.


I’ve been looking for an extended metaphor (a conceit) for inspiration. I’ve landed upon the motor vehicle as my metaphor.

There are three essential properties of a car that need to be right; chassis,engine and steering.



Without a sound chassis and associated bodywork, a car can take you nowhere. The chassis has to be of sound construction and durable. The pension equivalence of a chassis can best be described as the service superstructure.



The engine of a car is what drives performance, an engine should have good fuel economy and should meet the needs of those who drive the car. There can be many different types of engine. The pension equivalent is the investment mechanism.



The consul of the car that comprises the wheel,gears, pedals and dashboard enables the driver and any passengers to control the vehicle and enable its progress to the destination. The pension equivalent is the member interface between provider and member.

Whether the vehicle in question is a single seater or a charabanc with many passengers, this conceit holds true.

Rather than think of a pension as having 31 governable characteristics,  we should think of it as a vehicle that gets people from A to B in a variety of different ways.


We think we can measure the suitability of a vehicle in six different ways

  1. Its cost- is this vehicle vehicle “value for money” in terms of initial costs and ongoing servicing.
  2. Its performance – does it perform as expected (whether a Lamborghini or a mini)
  3. Its steering – does it give necessary control to the driver and/or passengers.
  4. Its chassis – is it of sound construction so that it securely carries driver and passenger
  5. Its adaptability – once it reaches its destination , can it be used for the return journey
  6. Its durability – will it stay the course and will it offer lifetime servicing.

Maybe I am over-stretching the metaphor , but I hope you get where I am going. The tangibility of a motor and our familiarity with them make it easy to relate to “what makes for good”.


Why we need fiduciaries – trustees advisers, IGCs


Most of us, cannot be so familiar with pensions; a pension’s value for money depends not just on what you can see – historic performance and quoted costs, but on a detailed understanding of fuel consumption (charges) and the capacity of the pension to continue to deliver.

Because this is hard, we need experts- fiduciaries, to assess and monitor value for money, ensure that administration is being properly carried out, check the calibration of the dashboard, check the brakes and accelerator, the steering and the mirrors that allow us to manage our pensions. Whether these experts are trustees or are members of IGCs or are our financial advisers, they have to do the same job, make sure we get from A to B without fuss.

These people who look after our pensions are our buyers, our service engineers, they do the MOT and make sure the car is safe. If they are not doing their job- it matters.

Which is why I think the job of being a DC fiduciary is too important to be left to people who don’t understand these things.

I do not see the standard of fiduciary care generally available to members of occupational DC schemes as very high at all. If we were to think of trustees as mechanics, I would not let most of them loose on my car, let alone put them in charge of a MOT centre.

There are over 40,000 occupational DC schemes in this country but there are not 40,000 occupational DC trustees up to doing the job.

We have been failed by these trustees in the past. The appallingly low numbers of retirees from DC trusts exercising the Open Market Option, the ridiculous charges levied on some investment funds, the creaking administration, the lack of member engagement and education and the failure to empower members to take decisions for themselves is endemic in occupational DC schemes.

It is no longer good enough for DC trustees to point to insurance company GPPs as “worse”, they’re not. By and large they are better. They had better OMO take up, provide better interfaces with members, are better administered and have investment funds that are much better governed.

I generalise I know, there are well governed occupational DC plans, but not many. And those few that are well run, cannot speak for the many that are not.

It is time that we got DC trustees to do their job- or shape out. We cannot go on tolerating failure in a part of the market that matters so much.


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

We need a Bus and a Lamborghini!


My friend Ralph Frank is very good at putting his finger on the problem. If he was a Doctor, I’d trust his diagnosis and I like to think of him with a stethoscope prodding around the body financial – listening for oddities.

Here he is on the contradiction between the Government’s direction of travel for “spending” and “saving”.

The freedom enjoyed by those over 55 will now be consistent with, and exceed, the opportunities those under 55 can access. However, the granting of these freedoms to the over 55s comes at a time when the same Government is focused on ensuring that there is a safety net, in the form of Auto Enrolment with a default investment option, for those under 55s who do not make decisions regarding their pension savings.

There are two fundamental dynamics in British politics that are grinding together like tectonic plates.

The first is the desire to “engage-educate and empower” people to take responsibility for themselves.

The second is the desire to act mutually for the common good.

You don’t have to be a political genius to see Steve Webb. Gregg McClymont, the Pension Regulator and the DWP as leaning towards collective solutions that provide mutual support. You don’t have to be a genius to see George Osborne, Mark Hoban , the FCA and the Treasury as seeing life through the different lens.

What has worked very well over the past five years has been a recognition by both political camps of the merits of the other. Gone the polarisation of politics of the 80s and 90s that saw a stand-off between “retail and institutional” ,”state and private”, “left and right”. Vestiges of those days are still apparent, I wrote about this in my blog about the AMNT and APPT”, but these are museum vignettes.

By historical accident, we have inherited a highly developed DC savings regime, powered by the weight of money from employers moving away from DB and accelerated by the development of auto-enrolment.

By comparison, we have inherited a derelict system of spending the savings. The system was constipated by annuities which blocked the development of proper systems of drawdown.

The drawdown product is weak; too expensive, over-dependent on advice and lacking the basic banking features we’d expect. The horror greeting the idea that people might be able to draw their pension from a cashpoint demonstrates how little empowerment there is  for those who want to exercise their freedoms.

The collective decumulation market is pretty well non-existent. If you are not getting a pension from a defined benefit schemes, your only pension will be from  from the state.

For the 90% of savers who took no decisions about how their money was invested before retirement, there is no collective alternative.

It is inevitable that a collective decumulation system will emerge to meet the needs of the 90%. As inevitable as the cost of drawdown falling and the means of drawdown improving.

In a wonder-world, we would all own Lamborghini’s , most older people would have a chauffeur (adviser) and petrol would cost 30p a litre (as it does in Dubai).


But we live in Britain where pump prices are still 125p a litre and as Simon Ellis points out

he OTR list price of the bottom of the range is £166k. If only we had an army of retirees with that sort of sum tucked away!

Pensioners have always been partial to busses, very social, not too racey – and cheap to use!


Whenever a right wing party takes over a council, the first thing under threat is “uneconomic bus routes”. Whenever a left wing party returns to power, it’s on the back of a promise to restore such “social” services to the elderly (who are very good at voting).

I see nothing wrong in a post-retirement landscape developing over the next five years that offers opportunities that encompass both chauffeured super cars and public transport (with other options in-between).

I hope that the angry brigade who are trying to derail collective decumulation will pipe down and I hope that the collectivists will allow drawdown to sort itself out without too much intervention (pricing caps etc).

As choices become more obvious  (bus-stops, taxi-ranks and super car showrooms) , the role of guidance will change.  Enquiries may become more sophisticated as the public become more aware of the new transport system. For the moment, we need to keep things very simple and ensure that nobody crashes!

With tolerance I believe the integrated transport system (we need) will emerge

Otherwise, to echo Ralph in his headline, we’ll be

travelling in opposite directions, on the same journey …

this is indeed

an accident waiting to happen

Transport system


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Re-energising trusteeship (for a DC world)

before I get old




My recent blog pointing out that DB trustees tend to make bad DC trustees has gone down like a lead balloon with certain DB trustees.

I don’t think is surprising.

The next question is whether we can find a new kind of trustee who genuinely improves member outcomes.

In a recent article, Pinsent Mason’s Mark Baker argues that DC Trustees should be stating what their job is through the publication of a clear written statement of  their purpose.Mark argues this statement should be in terms of how the Trustees intend to improve member outcomes.

I think that such a statement, if intended only to provide trustees with legal”protection”, is of no use. The  statement of intent backed up by resolute “energised” action. Otherwise it becomes just another document filed under governance that nobody reads and is downloaded only when a negligence suit is in the offing!



It is generally accepted that the biggest influence on what comes out is what goes in. There are now only two sources of contribution to a DC scheme (there used to be a third- national insurance rebates).

Source one is the contribution of the sponsoring employer. I have yet to hear of an instance of a DC employer lobbying employers for greater contributions. I have rarely heard of a DC trustee negotiating with a sponsor for a salary sacrifice arrangement where the majority if not all the NI saving is paid to the member rather than retained by the member. How many DC trustees engage with the sponsor on funding issues with the rigour with which negotiations with employers are carried out over DB recovery plans?

Source two is the contribution by the member. This is a different salary sacrifice, it’s a sacrifice of immediate gratification in exchange for long-term security; it’s the “spend on your future not your next night out” pitch.




The job of a trustee is to engage-educate and empower. I once saw a man engage an entire nightclub in Maltby South Yorkshire with a saving presentation.

He had a large wooden CASE which opened on hinges into two display. When the man opened the first display there was an array of topless ladies

Right- when you finish work, d’you want out of that?

The second display was of £1000 worth of £5 notes pinned to the other side of the case.

Well lads, that means you’ll have to have plenty of this!

Getting engagement does not have to be subtle- it has to be effective and immediate- you have seconds!



If you’ve got people’s attention , you have a marvellous thing- their time! Don’t waste it, you have only a minute or two to make your point.

Why is your audience not saving ?

Can’t they be bothered?

Do they know how?

Do they have prejudices agains the savings vehicle?

In my experience, if you can make it easy to save , if you can give them an idea of how much to save and if you can address their (probably legitimate) prejudices against saving into a long-term vehicle – a pension plan – you are winning.



In the 1990s I was a consultant to a large trust based DC plan whose trustees had worked out that the overall contribution structure wasn’t going to meet member expectations (comparable benefits to the old DB scheme). They agreed matching contributions with the employer which -if fully taken up- would then have given general comparability.

The Trustees also got a budget to employ me to go to the various sites to talk to members. Things were going well until we got to a northern brickworks where I was instructed to do my presentation outside. It was snowing and I objected. I was told by the site managers that his workers were on an hourly rate and he was paid on productivity. He wasn’t going to risk losing some of his bonus for the sake of some “pension rubbish”.

I made a complaint to the Trustees about this, the trustees took it up with the site manager who was reprimanded. We re-did the session and got good results.



For most people the next step they will take after hearing an engaging, educational presentation is towards you.

What do I do now?

If we can give an immediate action to people that can get them saving (more), then that is worth a thousand modellers.

Sure there is signposting to fancy kit and yes- we should encourage people to do the right thing the right way. But for most people, a simple form which asks them to commit to a new level of saving (either a % of salary or a nominal sum) , is the critical next step. Deliver it to their phone, or put it in their hand but make sure you get it to them as a next step!


Of course there are many other things that trustees should be doing.

They have responsibility for making sure the money invested works for their members and not for the 13 levels of intermediaries John Kay talks about.

They have responsibility for ensuring people in the DC plan know how their savings are growing so they stay engaged.

They have responsibility for making sure that the back office works so that people’s money doesn’t go astray

And they have responsibility for ensuring that  help is on hand when people move jobs, retire or die.


DC Trustees who took on a job that had KPIs based on improving employer contributions, maximising employee engagement, improving financial education and empowering members to take their retirement planning into their hands would get my whole-hearted support!

If I went to a trustee conference where I saw people speak with the passion and commitment of that man in the Maltby minor’s club then I would applaud.


Sadly, many employers have given up on DC Trusteeship, they have gone the contract based route because they cannot see the point of DC trustees. I say sadly because I have seen Trustees who have engaged their members in a way that an insurance company or even an employer sponsored pension committee cannot.

The point of trustees is that they are independent of employers, they act for the member not the boss. They do not act for themselves.

But most of all they ACT. Turning up for four trustee meetings a year, reviewing various reports from service providers demonstrating they’v hit their SLA, does not constitute ACTION.

For some time I have been pointing to PICA statistics that showed that historically the take up rate of the open market option on trustee controlled DC benefits was only 25%, this compared to over 30% where an insurance company controlled the contract.

In all the time I have campaigned for greater ACTION from Trustees, I have yet to have one trustee engage with me on this issue.

DC Trusteeship has failed and is failing. There is insufficient energy among DC Trustees to justify their existence.

What is more they account to no-one, not to members or employers. They assume they have a right to be there and when that right is questioned, they get angry.

Well, I for one, would like to see anger from DC Trustees, I’d like to see something that equated to passion rather than the torpor I’ve witnessed over annuities, or member contribution rates, or contribution negotiations with employers or indeed over the fund governance issues which have led to the 2015 DC reforms.

We need energy and enthusiasm from DC trustees, we need a clear sense of purpose and above all we need effective ACTION. All of these things are lacking in the behaviour of most trustees I meet – I say most- I do not mean all.

There are according to tPR, some 48.000 standalone DC plan operating under employer trusts. Can we really point to more than a couple of hundred where trusteeship is working successfully?

pension lamborghini


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So what’s the point of the DC trustee?



It’s the first rule of trusteeship- if you can’t measure it – don’t trust it.

It’s the right of anyone who has their own pension pot to know how much they are paying for the management of their money. If they cannot get this information or make sense of the data, themselves, they should have people to do this for them.

I find it hard to tell a worn tyre from a good one, I need someone I trust (Kwikfit) to tell me when I need a new tyre (and fit it).

As for my retirement pot, I need to know it is being managed well. I need the people at the Legal and General Independent Governance Committee to tell me that the money invested in their multi-asset fund is being managed efficiently and yes- I want to see the numbers! I want to know how it is doing against its targets and what I am paying in the way not just of upfront charges – but in management costs.

So I would have thought the first thing that a DC trustee should be wanting to do, is to match the people in the insurance company IGC and tell me what I was paying, not just in absolute terms, but against some relevant benchmark. They need to know if – relative to the best in the market- the fund(s) they are offering to members are up to scratch.

But this viewed in the same way by the trustees of DC schemes – or so it would seem if you read Stephanie Baxter’s piece in this week’s Professional Pensions.


In a very cute piece of journalism ,Baxter gives certain commentators just enough rope to hang themselves, and then sits back to enjoy the show.

Let me counterpoint a comment in the article against her opening remarks!

“The role of defined contribution trustees is getting increasingly demanding as policymakers seek to ensure that savers get a good deal from pensions.

A major part of this is ensuring that charges and transaction costs are fair….

Trustees will face an even greater challenge when they are handed responsibility for assessing and reporting on how they have achieved “value for money”

Here is the response from a senior professional trustee and a member of the NAPF’s DC Committee

It’s something the NAPF, IMA and the Financial Service Authority (FSA) have all tried to do and they’ve all failed… it’s almost as if the DWP is saying that “where everyone has gone and failed, you trustees now have to succeed”.

This is crazy stuff! The point of the FCA and DWP’s intervention in the market is precisely because of the systemic failure of these noble bodies to bring the people who manage our money to account.

The FCA and DWP have the power to force fund managers to disclose information and the resource to create the tools which trustees can use to properly measure value for money. Trustees should be calling for these powers to be exercised, for these tools to be made available to them. Past failure should not be a guide to the future!  Remember…

If you can’t measure it, don’t flipping trust it!

Being a trustee is not easy, being a DC Trustee is particularly tough- you are responsible for the outcomes of your members.

DC Trustees are currently walking away from any responsibility for the decisions being taken by members at retirement (regrettable but understandable).

But to suggest that “the onus on trustees to acquire detailed data on transaction give greater disclosure on headline transaction costs and ..provide information on the outcomes that these transactions produced”  significantly ups the ante for trustees is a flagrant abnegation of responsibility. The onus to get members VFM has always been there, past failure should not be a guide to the future..

Would my man from Kwikfit allow me to drive on dodgy tyres because he had trouble with a wheel-nut?

The Pensions Regulator has been calling for this kind of governance since it published its “value for money”formulation in the “good DC outcomes” paper in January 2011. This blog has been calling for better disclosure, for the introductions of benchmarks and for Trustees to step up to the plate since 2009. Here we are 1350 blogs later with a senior DC mandarin moaning

“It’s not something trustees have done in the past”

As Captain Mainwaring might have commented

“shut up Pike, don’t you know there’s a war on”.



I am beginning to question the role of DC trustees. If doing the job is too hard and we have to employ professionals, why don’t we give the fiduciary role to IGCs and be done with it.




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Cass calls on fund managers to be paid on results.




Dr Nick Motson of Cass Business School has issued another broadside at the funds industry who have been dilatory at best in responding to consumer pressure to better align its fees to the value it brings to consumers.

Cass’ idea is a simple one, fund managers would be paid on performance against what they said they would do. A sophisticated version of “no-win, no-fee”. The argument is that the good ones would be paid more and the poor ones less. The poor ones would have to leave the market- to everyone’s relief.



But it’s not as simple as that is it Justin?

Listening to Radio 5 live, I heard my red braced school-chum Justin Urquhart-Stewart defending the fund industry’s practice of charging people a % of funds under management rather than linking fees to the performance or underperformance of the fund – relative to what that fund set out to do – e.g. the benchmark.

This is of course, entirely missing the point – deliberately some would say!

Fund managers can (and should) be paid performance fees even if the fund shrinks!

The example was given of a fund manager investing in Japan who would have seen his fees fall over 20 years because of the capital losses in the Japanese Stock market. As I understand it, an active fund manager who had seen a fund fall by less than the benchmark (typically a Nikkei index) – would get paid more than a passive manager who just delivered the market return. The example is again irrelevant.

The point of aligning fees to performance against the stated aim of the fund is that it does not reward the 80% of active managers who consistently fail to bring home the bacon and bring some risk to the business of active fund management – to the managers!

But active managers should not be rewarded for not doing what they said they would

At present, anyone can set up as an active manager and charge high fees (1.5% of the fund is typically quoted as the RRP). But so long as the fund continues to benefit from the support of its uni-holders, the manager continues to rake it in whether he or she does well or badly.

Which makes for an appalling lack of incentive on the manager to perform. It makes for lazy behaviour (see the stuff below on charges) and it makes for a culture where the creature comforts of managers come before the returns of the investors

On the radio, the question was asked –

“why do investors stick with active fund management”.

The answer may lie in the difficulty of moving money, it may lie in the expense of moving money and it may be because investors are trying to buy and hold- as Warren Buffett tells them to.

Whatever the exact reason, investors are doing for fund managers, what fund managers need and want, giving them the long-term horizon to buy and hold for value. The question we should be asking active  managers is why they are doing so little to reward the people who are being loyal to them.

One thing that is for sure, is that all the cards are in the active managers hands and we can see (below) that the active managers are not too keen to show their hand to people who ultimately own the money.

This is known as fund management’s “asymmetry of information”.

Justin blithely spoke on Wake up to Money this morning about the days when fund managers were obliged to churn their portfolios every year to generate extra commission for the managers. Apparently these days are gone. This was another (successful) ruse of Justin to throw the pursuing journalist off the scent.

For, within the past two years, research by Dr Chris Spiers, the new MD of KAS Bank, showed some active fund management houses were still churning portfolios to a point that it was nigh on impossible to justify the transaction costs involved by the potential for higher performance.

Not only was Spiers’ research suppressed, but the fund management industry, led by the Investment Management Association, continue to suppress information on the portfolio turnover rates  (churn rates) of active funds.

Performance fees and full cost disclosure go hand in hand

The issues of linking active performance to fund management charges and the disclosure of the true costs of investing are co-joined. Many active managers have such high transaction costs (resulting from poor execution and over-trading) that they become serial underperformers no matter what the skill of the managers. It’s like trying to win a horse race with Fatty Arbuckle on its back!

For the fund management industry to own op to the true costs of active management, it would have to expose itself to the criticism of the journalists on Wake up to Money that allowed Justin to kick the issue into the long-grass.

There would be nowhere for fund managers to hide.


Earlier this year, the Pensions Institute issued a report that claimed investor returns are being hurt by hidden costs that are at least as big as the visible costs in actively managed funds. Here is the meat in their sandwich

Asset managers should be required to reveal the full costs of active fund management to help investors see the full drag on their returns.

The Pensions Institute at Cass Business School has published a white paper calling for asset managers to disclose all visible and hidden costs which are ultimately borne by investors.

Research cited in the paper suggests that concealed costs – such as bid-ask spreads and transaction costs in underlying funds – can make up to 85 per cent of a fund’s total transaction costs. The remainder is taken up by visible costs such as commissions, taxes and fees.

Director of the Pension’s Institute, Professor David Blake, said: “No good reasons have been put forward for why all the costs of investment management should not be fully disclosed. They are after all genuine costs borne by the investors.

“There is little point in requiring transparency where the reported measure for ‘costs’ does not include all of the costs, or in the short-term, as many costs as could currently be reported on an efficient basis.

“If total investment costs are not ultimately disclosed in full, how can there ever be an effective and meaningful cap on charges, and how can active investment managers ever asses their true value added?”

Costs could be reported in the form of a ‘rate of cost’ – which could be deducted from the gross rate of return to give a net rate of return – and as a monetary amount, which could be compared with the monetary value of the investor’s portfolio.

The paper suggests a staggered approach could be taken in the lead up to the full disclosure of all transaction costs.

In the initial stage, investment managers should be required to report all visible cash costs involving commissions, taxes, fees, custodial charges and acquisitions costs, together with the hidden cash costs of bid ask spreads, transaction costs underlying funds and undisclosed revenue.

“All these indirect costs relate to the efficiency of the investment management process and all good investment managers should have an estimate of their size,” said Professor Blake.

Once investment management firms have the right IT systems in place, non-cash costs should also be reported comprising of market impact, information leakage, market exposure, market timing costs and delay costs (see below).

Professor Blake added: “The hidden non-cash costs would be more challenging to calculate, since they involve the analysis of information that might not necessarily be automatically captured by the investment manager’s own systems. Nevertheless, the issue is whether fund manager systems could be configured to generate similar information on a cost-effective basis.”

Visible cash costs

  •   Commissions
  •   Taxes
  •   Fees
  •   Custodial charges
  •   Acquisition costs

    Hidden cash costs

  •   Bid-ask spread – of the hidden costs, the simplest to understand is the bid-ask spread that a dealer or market maker charges to buy and sell a security or an investment bank charges for, say, a currency hedge. The total spread costs incurred during the year will be related to the annual portfolio turnover.
  •   Transactions costs in underlying funds – if the investment manager buys funds on behalf of the investor, the transaction costs incurred by these funds are not reported even to investment managers, but are still paid by the investor in terms of a lower return.
  •   Undisclosed revenue – the investment manager might also benefit from undisclosed revenue, such as retained interest on underlying cash balances or retained profits from stock lending.

    Hidden non-cash costs

  •   Market impact – refers to the reaction of the market price to a large transaction, such as a block sale of securities. The market price will fall in the process of selling the securities and the average execution price will be below the pre-sale price. If the investment manager attempts to execute a large transaction in smaller batches – e.g., by advertising trades to attract buyers or seeking indicators of interest – this will lead to information leakage and will have broadly the same effect as market impact.
  •   Market exposure – refers to the fact that an investor is exposed to what is happening in the market during the period that the transaction is taking place. Suppose the investment manager is planning to buy securities for a client. The client is exposed to the risk that the market price rises before the transaction is executed.
  •   Missed trade opportunity or market timing costs are the costs associated with not executing a transaction at the best possible price. Finally, there are delay costs associated with waiting for transactions to complete (e.g., holding the purchase price in a zero-interest account). Some of these non-cash costs can be hedged against – e.g., those relating to adverse market movements – but the cost of the hedge then becomes an explicit measure of the hidden cost.

    Memorandum item:

On 13 May 2014, the Financial Conduct Authority criticised the investment management industry for not reporting charges to investors sufficiently clearly. In particular, it criticised the annual management charge (AMC) as failing ‘to provide investors with a clear, combined figure for charges’. Instead, it recommended the use of an ongoing charges figure (OCF) which, in addition to the investment manager’s fee, includes recurrent operational costs, such as keeping a register of investors, calculating the value of the fund’s units or shares, and asset custody costs. In other words, the OFC measures costs that an investment manager would pay in the absence of any purchases or sales of assets and if asset markets remained static during the year. The next day, on 14 May, the Financial Reporting Council accepted the Investment Management Association’s (IMA) proposal to report not only the OFC, but also all the dealing costs and stamp duty paid when an investment manager buys

and sells assets in the fund’s portfolio. IMA chief executive Daniel Godfrey said: “Our new measure is simple, easy-to-understand and covers every penny spent by a fund…It will give investors confidence that nothing has been hidden.” Unfortunately, even with the new information reported, there will remain costs that are hidden.

Fortunately, the FCA are on the case, they will not be fobbed off by stockbrokers in red-braces- no matter how charming!

The days of active fund managers getting away with lazy practice and in extreme cases malpractice, have to come to an end. Full disclosure of funds will be necessary for the IGCs from next year, and if the information is in the hands of the insurance platform managers, it has to be put in the hands of those who run institutional pension funds and individual portfolios of funds- soon after.

When the public sees the cost of active fund management, fund by fund, they will be able to decide which active fund managers are really doing their job on the hard evidence of cost control and performance against the stated ambition of the fund.

This will be a better basis than the current practice which appears to be based on the publication of ever more extravagant advertisements professing the prowess of fund managers and based on little more than pretty pictures.

And so say all of us , at….

hi res playpen


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The fine line between “patronising” and “paternal”.


Last week Tom Mcphail (Hargreaves Lansdown) had a go at Teresa Fritz (financial Services Consumer Council and MAS) about the need for advice.

You’d expect the two to clash, FSCS and MAS are not much loved by advisers who see it as an incompetent policemen and Hargreaves are every advisers least favourite adviser (mainly because they are usually right).

The Money Marketing version of events is here .

I’ve disagreed with Tom a few times recently – but I’m right with him here and I wrote to thank him for standing up for people who want to do things themselves.

He wrote back this morning

Lots of people need help managing their money, some need advice; a minority need no help at all. By suggesting everyone needs to be told what to do, the FSCP is obstructing the important work which should be going on right now to establish good minimum standards in how we engage and communicate with the millions who just want a bit of help.

With Hargreaves’ Vantage product, set to scoop the pool of non-advised money, there will be plenty of cynics muttering “Tom would say that”, but that is precisely the point.

If advisers aren’t happy with Vantage, there is nothing to stop them setting up an alternative.

I’m watching Saturday Kitchen as I write this so I’m being dragged into a culinary conceit.

Recipe for a successful drawdown service

  1. Find yourself an amenable bank or insurance company to provide you with a personal pension licence

  2. Get yourselves a funds platform – probably from the above (but other platforms are available)

  3. Find a sensible administrator capable of managing records and providing feeds to your customers so they can engage, get educated and be empowered to manage their drawdown)

  4. Organise your interfaces so customers get on with things as they see fit, contacting you when they need to.

  5. Market this to your clients and anyone else’s clients and to all the employers and trustees who have lots of staff and members who need your help from April 2015.

All this need not be very hard, you only need to understand the way people like to spend their money and be expert in the technicalities.

Alternatively you could join First Actuarial and enjoy the journey we are on!



I know and like Teresa, and good consumerists such as Mick McAteer. Tom says of them “They are actually a danger to the financial wellbeing of this country” I  know where he is coming from.

Yesterday I wrote about Nutmeg and and how we can use the new technologies to engage, educate and empower people to manage their income in retirement.

I will keep you informed about our journey. I suspect we’ll be calling off at various stops near you and I wouldn’t be surprised if our terminus is CDC central – where a lot of defaulters will pull in (or hit the buffers)!

I hope that Tom will spend some of the journey with us, we should be grateful that he spoke out at the reading of the Pension Taxation Bill (as we did at the Pension Schemes Bill).

I am proud to associate the names of Hargreaves Lansdown and First Actuarial who may be on differing trains and maybe parallel rail tracks – but taking people to the same (good) places.


me worry



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Is there a place for digital advice in pensions?


hi res playpen


I spoke yesterday at the Pershing Conference in Westminster. My pal David Calfo who is managing many of the seismic changes at the University Superanuaition Scheme  spoke with me and the session was chaired by Pershing’s Gerard Wellesley. It all went rather well.

The success of our session, which discussed the role of the IFA in 2015 in helping people make use of their new pension freedoms, was down to what came before, a brilliant debate between Nick Hungerford (CEO of Nutmeg) ,Emily Haisley, behaviouralist at Barclays Wealth and Michael Hall of Deutsche.

I tweeted during their debate



and indeed the debate challenged the role of the “analogue” adviser with a vigour that was both fresh and disturbing. Nutmeg have set out to change things and Hungerford’s approach is highly disruptive

Looking at my tweets I read

I hope these spontaneous remarks posted from the floor give an idea of the dynamic that was created.

It seems to me that for Nutmeg, and this goes for Pension Play Pen , the challenge is as much from its peers as from the scope of what it is trying to do.

If you’ve got time , watch Nick in action- this video is really only worth watching from minute 20 onwards – there’s about an hour of it

What’s scary is that Nick isn’t trying to be disruptive, he doesn’t seem to be trying at all!

In fact, in super-confident Nick Hungerford’s world, things happen his way – he just lives in a different paradigm.

I’ve no doubt that Hungerford is making sense to the people who don’t do investments (as well as people like me who do).

Pension PlayPen like Nutmeg uses what Nick called “rules based algorithms to get good outcomes”. Our rules work for the 90% of people who want to be guided to a decision that makes sense, not to the 10% who want to forge their own decision making process.

Nutmeg like Pension PlayPen puts financial decision making in second place to living and working.

Nick seemed quite happy for his team to be chatting on a webcam sitting on the side of someone’s screen while they got on with whatever work they were doing.

And I was struck by a brilliant observation by Emily Haisley, “people are more honest to a computer than face to face”.

I think there’s a real deep truth here, we are more candid with the machine, even when we know there is someone or something on the other side of the screen analysing what we input.

The motto for the future must be “engage,educate and empower” and this is what digital technology is doing for the new generations of people coming into the workforce and for people like me , tapping into the power of the web.

We are on the edge of a revolution in pensions where up to 400,000 people a year are going to be asked to manage their financial affairs in later life with freedoms unimaginable twelve months ago.

We need to play catch up to get to people, we need to use the new technologies in a way that Nutmeg and Pension PlayPen are pioneering.



nutmeg 2

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I don’t normally do press releases on here, I will make an exception here.

People are embarrassed about money – when it’s their money they are talking about. The taboos about debt, wealth and financial planning are real and we need to understand them, if we can get on with helping people to manage their money better.

So over to L&G…

New research from Legal & General reveals two fifths of the population (41%) say money is one of their biggest stresses, yet nearly half (46%) say finances are a personal matter not to be talked about. As a consequence of this social taboo, people are failing to plan for their financial future, and having to cope with money worries on their own.

The effects of money worries include: increased pressure on family life (39%); anxiety (39%); bad moods (29%); and sleepless nights (26%). A third (34%) of those surveyed say money is their biggest stress, yet the same amount (36%) avoid talking about their finances with friends and family because it isn’t the “done thing” – rising to over two fifths for those aged 55+*. 

Against a backdrop of an aging population, where people may have to work for longer, and the Chancellor’s recent changes to annuities, people are having to take more responsibility for their long term financial security. Financial planning has become more important than ever, yet many are failing to take action.

Legal & General’s Taboo Tent has been touring the country, speaking with members of the public to get to the bottom of why talking about money is such a taboo. The Taboo Tent uncovered the nation’s top taboos and challenged people to take their first step towards financial security by holding awkward financial conversations for the first time.   

The top six taboo conversation topics** are:

Between couples Between close friends With parents 
Past romantic relationships (45%)

Annoying habits (43%)

Weight (38%)

Spending habits (36%)

Death (34%)

Debt (32%)

Debt (46%)

Salary (45%)

Annoying habits (44%)

Savings (41%)

Family scandals (41%)

Politics (36%)

Debt (35%)

Death (33%)

Annoying habits (32%)

Family Scandals (31%)

Past romantic relationships (30%)

Spending habits (30%)


Annie Shaw, consumer finance champion and Taboo Tent host
, said:

As a nation, we simply don’t like to talk about money matters. It’s a social taboo that makes many people feel awkward. It’s not helped by the fact that financial planning can be a minefield of confusing jargon and alien terms that are difficult to understand. But talking about money doesn’t need to be a taboo. A conversation with someone who can explain the facts in plain English can go a long way to help people understand their finances and plan for the future.” 

Legal & General Assurance Society executive director and chief executive John Pollock, said:

“Taking the time and having the confidence to talk about financial planning is hugely important – not just for financial reasons but for our wellbeing too. Despite this, one in five people would prefer to avoid talking about their finances and leave their financial planning to chance. We need to break this social norm and start talking about money. No matter what the situation or stage of life, achieving financial security begins with having the right conversation.”   

The research shows that money taboos vary depending on the social situation. For close friends, salary and savings are awkward conversation topics, for partners many find it easier to lie about their finances altogether than tell the truth. Talking about debt is the biggest taboo when with parents. [See below for full breakdowns]

Between couples Between close friends Between parents
Over one in 10 (13%) of those in relationships say they are more likely to lie about their finances than any other topic with their partner, rising to over a fifth (23%) of people aged 25-34 years old.

White lies that have been told include: how much people earn (15%); save (21%); how much debt they’re in (22%); and hiding credit card statements (11%). 

Many say their partner has no idea what they have saved (18%), how much they earn (8%), or how much debt they are in (12%).

One in 10 (10%) say they do not feel comfortable discussing debts with their partner.

Only 10% of people say they talk regularly about their personal finances with their friends.

Salary is one of the most avoided conversations with 61% of people saying their close friends have no idea how much they earn.

Of those who have discussed the topic with friends, 16% admit to having told a white lie about how much they earn.

A quarter (25%) of people say they never set time aside to talk about their finances with a parent, and over a fifth (22%) say they do not feel comfortable talking about debts with their parents.

Perhaps as a result of this, over two fifths (43%) say their parent does not know how much debt they are in, and nearly half (49%) say their parent has no idea how much they have saved either. 

White lies that have been told include: how much people earn (15%); save (21%); how much debt they’re in (22%); and hiding credit card statements (11%). 

Many say their partner has no idea what they have saved (18%), how much they earn (8%), or how much debt they are in (12%).

One in 10 (10%) say they do not feel comfortable discussing debts with their partner.Only 10% of people say they talk regularly about their personal finances with their friends.

Salary is one of the most avoided conversations with 61% of people saying their close friends have no idea how much they earn.

Of those who have discussed the topic with friends, 16% admit to having told a white lie about how much they earn.A quarter (25%) of people say they never set time aside to talk about their finances with a parent, and over a fifth (22%) say they do not feel comfortable talking about debts with their parents.

Perhaps as a result of this, over two fifths (43%) say their parent does not know how much debt they are in, and nearly half (49%) say their parent has no idea how much they have saved either. 

The lack of conversation around finances means many are not planning for their financial future. Over two fifths (41%) of people only talk about money when they have an immediate worry and a fifth (21%) prefer not to worry about money at all, as they take the approach it will ‘all work out’. 

Encouragingly, the research shows two fifths (41%) of people say they are comfortable talking about money and their financial matters, and (33%) say they have long term financial plans in place and feel good about their finances as a result.

To help more people have financial conversations for the first time, Legal & General is providing information and top tips on its website to help individuals get started. With a fifth (22%) of people saying they find financial planning confusing and have no idea where to begin, Legal & General is helping people get closer to achieving financial security:


Posted in pension playpen, pensions, Retirement, welfare, with-profits | Tagged , , , , , , , , , , , , | 2 Comments

Pensions are yours to spend – but how do you get to the shops?

Why shouldnt I by it

Ours to spend!

If I were to give you £100,000 and tell you that that was to bide you over to the end of your life you might initially be excited – you might then become apprehensive and you might eventually give the money to someone else for management,

The pension windfall that many of us will receive at 55 is just such a gift. True it is our own money, saved either from our own resources, in lieu of pay or in lieu of SERPS/S2P. But it is money that has never before been real (as in realisable).

It is money that has been in a wrapper called “pension” with a “not to be opened till 55 and then without the express permission of HMRC/financial adviser/pension provider”.

It hasn’t really been our money- it’s been making someone else money – but it’s not like our house or our stamp collection or even the shares we got when we worked for zyz. It’s not ours to spend.

time to spend

If you cant trust anyone – do it yourself!

If I was George Osborne , I would be marketing the whole pension freedoms project under the “yours to spend” banner. If, as Hargreaves Lansdown predict, 200,000 cash out their pensions next year, it’s not just that they want to spend their pot, it’s that they want their pot back from the control of others -trustees, insurers – even SIPP managers.

They might rather do it themselves, pay the tax but not be beholden to someone they don’t know, trust -let alone like. Let’s face it, have you ever seen a financial adviser or pension fund manager portrayed sympathetically in the mainstream media, the last one I watched on Coronation ended up driving his family off the edge of a dock!

In a brilliant blog (here)  Mark Scantlebury and a group of friends explore why the people who run and sell pensions are so distrusted. I won’t rehearse the same old ground. When I went to the Pitch a couple of weeks ago, one of the judges- a serial entrepreneur fingered me after my pitch

you guys in pensions have ruined two of my businesses, I’m not going to let you do it again

I asked her how she was going to avoid pensions with her sixties looming..

I’m going to do it myself

So how can we help people do it better?

I imagine the journey people take in retirement as needing some kind of transport. The alternative is you spend all your money on day one and never go anywhere!

And the choice of  the form of transport

- communal (CDC or annuity),

or taxi (advised drawdown)

or hire-car (self- advised drawdown)

is up to the people taking the journey.

To extend the analogy, until recently the only way to travel was by barge; the annuity got you there slowly and safely, but it was a little boring.

barge 2

I’m trying to imagine what is needed for my new transporters and I’ve decided their are four essentials

  1. There must be a trusted brand providing management
  2. The vehicles must be properly powered (with the right investment options)
  3. The vehicles must have sound chassis- (properly administered)
  4. There must be passenger information
  5. There must be a driver – at the controls


A trusted brand…

Supposing that a new and trusted financial brand – Virgin Money – Metro-Bank – Money Saving Expert – Pension PlayPen, decided to set up a product that helped people organise their finances to pay themselves an income for life- what would it look like?

Properly powered…

Well to begin with – there would have to be an investment platform- either an insured one or one of the new funds platforms like Ascentric, Nucleus or Hargreaves .

A decent chassis…

Then there would have to be a back-office system that  kept a record the state of play-

  • how much money was left in the pot?
  • what the tax position was (lifetime allowance, annual allowance, income tax etc)?
  • how had transactions been processed ?

Passenger information…

There would have to be a dashboard for people using the system to help them understand what was happening.

The key gauges would look like those on a car;-

  • a gauge showing the fuel burn and whether it was higher or lower than expected;
  • a gauge showing how far it was from the expected destination- sadly  the anticipated date of death
  • and a final gauge showing the likelihood of getting to the end without running out of petrol

Other gauges would show how close someone was to exceeding their lifetime allowance, what headroom they had to top up their pot with new contributions and where the person was relative to their current income tax bands.

For someone to be able to the pension transport system they would, at the very least , need to have the investment engine, the administrative chassis and finally the dashboard to see how things were going.

Someone to drive..

But there is one other aspect to this vehicle that is need, a system of controls that allow the vehicle to be driven. These must include a steering wheel to determine the direction of travel (let’s call this the fund selector), a brake to ease off the speed and an accelerator to speed up. Let’s leave any more complicated controls aside.

Pension Freedoms = Your choice of transport

Transport system

I believe that before too long, anyone who has a pension pot will have access to the transport system and the choice they will have will depend on the amount of control they want.


For some they will want to let the “train take the strain” and will be happy to let all investment and income decisions be taken by a trusted third party. This could be set up by a union or a trusted financial brand (MoneySavingExpert, Pension PlayPen)! They would set the burn rate on your money, maybe by looking specifically at your health or maybe treating you as one in a pool of all the people on the train.

For some, a taxi- driven approach will be “deemed more appropriate”. So an adviser will be brought in to drive the car and manage the fuel efficiency to make sure you get to your destination without running out of money. People will be able to find taxi-drivers at the MAS taxi-rank- sorry Directory


Finally , there will be dedicated enthusiasts determined to drive their own pension car. It may not be a Lamborghini but it should be a robust vehicle with an MOT provided by an IGC or similar . If you want self-drive, a map, instruction manual and a proper car is about all you expect.

We have the drivers – we don’t have the vehicles (yet) !

We do have taxi-drivers, they are called IFAs, we do have train-drivers- they are currently managing DB schemes but they could as well switch to running CDC options for those who want the train to take the strain.

Those who want to drive their own cars have probably taken instruction. There are a small group of people (Emma Douglas called them badgers) who will take to the road without anyone’s help. Fortunately it is only themselves they can harm!


What we don’t have are the right pension vehicles – whether collective or individual which give all types of travellers the view of their financial future necessary for them to decide how much they want to do themselves.

So we approach April 2015 with a blueprint for the travel system of tomorrow, but not the infrastructure.


Can we manage  the queues while we build them?

Fortunately , the numbers taking decisions in 2015 are relatively few and they can probably sit a few months on the platform or car showroom or taxi-rank waiting for the right form of transport to show up.

But the problem will be impatience. Many will simply decide to take their money and run, (200k according to Hargreaves Lansdown). The longer we leave it to find the right vehicles  to take people forward, the more will simply take their money to their bank account and away from pensions.

We need to encourage people to come aboard!

If you’ve read this far, you’ll know that for most people , taking money from a efficient environment where there are tools to enable people to manage their pensions and put it into bank accounts where there is no help from the tax man or from experts, is a bad move.

There are exceptions, if you’ve got a low life expectancy or a very small pot and an unused personal allowance and/or a pile of debt, you are probably best spending your pot (as the Citizens Advice Bureau should tell you).

But most people have got more ambition with their retirement savings than to spend them day one, most people (70% according to Aon Hewitt) want a lifetime income – a pension – which supplements what they get from the State.

Pensions people should be manufacturing vehicles as you read!

If we believe we are up to the job of managing people’s pensions, we cannot sit on the sidelines and allow the money to seep away, we should be working with each other to build these pension vehicles.

By way of a “fantasy team” we might haveMartin Lewis  talking with Paul Bradshaw talking with Sue Applegarth talking with Steve Bee to create new products that win back the trust of the many.

This might sound fanciful and I guess it is . But there is such a great opportunity to get it right! We have to think outside the traditional box and find a new way to deliver – whether we call it CDC or collective drawdown, or synthetic annuity or individual drawdown or defined ambition.

The game changer is the transport system!

The game changer for the consumer will be the ability to do it themselves. Right now people know that their pensions are “theirs to spend” but it is one thing to have the vouchers, they need a way to get to the shops.



Posted in advice gap, pension playpen, pensions, Pensions Regulator, Personality, social media | Tagged , , , , , , , , , , , , , , , , , , , , , , , , | Leave a comment

Straight talking from the IMA on charges?


APTOPIX Britain RBS Protest

In one of the least incisive video interviews I’ve seen this year, here’s Ian Smith of Pensions Week quizzing Jonathan Lipkin- IMA Director of Public Policy Decision- on how the IMA and its members are facing up to the challenges of 2015. The 6 minute video is here.

The background

The IMA and its members are charged with disclosing the real costs to members of workplace pension funds of fund management. To do this, they needed to work out a formula that includes not just what is charged overtly to the trustees or managers of a contract based arrangement, but what is charged indirectly to a member’s fund (the hidden charges).

The worry within the DWP and FCA is that more you cap the overt charge, the more managers find ways of increasing hidden charges which erode the “Net Asset Value” of your pension pot.

So the DWP are requiring the disclosure of the hidden charges  by 2016 and making sure that those governing occupational schemes (trustees) and GPPs (IGCs) are able to see whether members are getting value for money from these additional costs.

IMA obfuscation #1 -talk about something else

The tried and tested way of responding to these kind of pressures is to obfuscate. This word means to cloud the subject in smoke. The particular smokescreen being used at the moment is to pretend that the asset managers are far too busy responding to the challenges of the budget tax reforms and their impact on the default funds which they operate.

Let’s be quite clear, this is none of the business of asset managers. Asset managers are here to provide asset management , not to devise default funds. If their marketing departments decide they want to make themselves attractive to the people who buy their funds by suggesting default strategies- ok. But managing existing money comes first.

It is, in any case , impossible to accurately establish what people will invest in after April 2015. Firstly we can’t second guess individual choices and secondly, until a new default decumulation strategy takes hold, we have no idea what those who don’t take choices will end up not choosing (but investing in).

Faced with their being no default product and no information on what people taking choices will do, the asset managers would be better off getting their house in order and complying with what they have been asked to do by the DWP, the IGCs and scheme trustees.

IMA obfuscation #2 – pretend it’s somebody else’s job

So back to Jonathan Lipkin and his smokescreens. The second smokescreen is the IMA’s contention that the charges within their funds aren’t really important and what really matters is the annual management charge which is “not much” to do with them.

It is true that the cost of asset management to schemes and contract based management is a relatively small part of the Annual Management Charge. The AMC has to pay for administration, member communications as well as all the junketing that goes on to encourage people like me to recommend one scheme or CPP over another. The cost of fund management to the scheme of GPP managers may be less than 0.05% pa.

But what is the cost to the members of the fund management?

That is the great unknown

The cost to the members may be many times more than the cost of the fees. Recently Railpen admitted that following an internal investigation they discovered it was paying five times as much in hidden costs as the headline fee for fund management.

Railpen’s is an extreme example, it was investing in notoriously expensive fund management techniques , most of which would not be included by those creating and managing DC default funds.

Why it is absolutely the IMA’s job and why it matters

But this is the point. Until the IGCs and Scheme Trustees who choose the default fund strategies know how much these strategies are really costing, they cannot make a decision.

And until the IMA and its members agree a formula to properly disclose these charges, the people who make the decisions about the new defaults won’t be able to make informed choices.

And until the IGCs and Scheme Trustees get the information about hidden costs they will not be able to comply with their duties post April 2015 which include reporting to members of the Schemes and GPPs on the default (and other) funds offered them. This reporting must specifically mention the quantum of costs being born by members within the funds they are being asked to use.

Trustees and IGCs can report on everything else, they can show nice pie charts that demonstrate how the AMC is divied up between admin, comms, reserving distribution and “corporate overhead”. They can even include a slice for what they are paying for fund management. But that is only telling half the story.

What the IGCs and Scheme Trustees cannot tell members is what is being taken from the fund’s net asset value by way of hidden charges – the costs of dealing , of currency hedging, of  broker research (still bundled into dealing costs) and the market impact of the execution of trades.

This shameful dissembling must stop

It is absolutely wrong- shamefully wrong – of the FT to allow its pension magazine to be used as a PR soapbox for the IMA.

It is shamefully wrong of the IMA to imply that it is trustees and contract based managers who are lagging. They cannot define the AMC till they have the management information the IMA and its members are with-holding.

The AMC will be defined by subtracting both the cost charged to the trustees or GPP manager for funds and what is taken out of NAV from the 0.75% cap. The remainder of the annual charge pay s for the fixed costs and anything left over is the scheme or GPP managers to keep.

So Ian Smith at Pensions Week, these are the two questions you should have asked

  1. When are the IMA’s members going to publish the total cost of the fund management (both explicit and hidden)?
  2. When are they going to stop meddling in default design and public disinformation campaigns on AMC definitions?


What the Government are doing to sort this out

There is some good news on the horizon. We don’t have to listen to this kind of nonsense from the IMA  much longer.

The FCA are working out a formula which ICA members will have to use to calculate hidden costs. This “Government Intervention” has been deemed necessary because the IMA and the ABI would not publish a satisfactory formula themselves.

I have written elsewhere on this blog about the IMA’s continued support for shocking malpractice such as the bundling of broker research into trading costs (a form of soft commission). The FT have recently reported on the practice of some fund managers of putting trustees buying their funds under a “non-disclosure agreement” to make sure that where low prices are demanded- they are not made generally available to the market.

Why this Government Intervention happened

The DWP and FCA interventions are happening because the IMA and its members arrogantly refuse to comply voluntarily with what their customers can rightfully claim to be “best practice”.

I see I have a meeting with Jonathan Lipkin in my diary on November 11th and you can be quite sure that what I am saying in this blog, I will be saying to his face.


And how’s this for barefaced cheek?

Oh and if anyone wants to hear the Jonathan Lipkin view on investment governance – including his top tip to take DC governance seriously – try this little beauty from May 2013.

If you need the IMA to teach you about DC Governance – you’ve got a problem!

APTOPIX Britain RBS Protest

Posted in FCA, Financial Conduct Authority, Financial Education, governance, pensions | Tagged , , , , , , , , , , , , , | 5 Comments

10 reasons why I’m proud to work for @firstactuarial

First Actuarial Students

First Actuarial Students

  1. We have our Conference at the brand new Centre Parks at Woburn (KPMG hire the O2)
  2. Our clients don’t pay to hire the O2
  3. We don’t do fiduciary management
  4. We don’t have a vertically integrated mastertrust
  5. We let people blog, tweet and comment – we don’t do “thought police”
  6. We know how to laugh at ourselves
  7. We’re ten years old, 200 strong and turned over nearly £15m last year
  8. We don’t lose clients
  9. The 9 people who started this thing are all still here
  10. They own a wedge of Pension PlayPen

F1rst Actuarial hi-res

There are people who think that we are uncommercial. That’s because we take a long view. Because we don’t have bank debt and don’t have to report to venture capitalists we can build our business at our and our client’s pace.

Clients who fund pension schemes are in for the long-run. Pension plans aren’t “one and go”, they need nurturing. We could make a lot of quick money out of pensions (and many do) but since most of us are under 40, what’s the point of a Lamborghini today and your reputation toasted?

Working for people who take a long-term view is comforting, I’m 53 and I’ve probably got 20 productive years left in me. I’ve still got my health and my sense of humour.

First Actuarial is still at the start of it’s career, just breaking out of nappies compared with some of our rivals.

But if I was competing with my pension scheme for the running of my business – I’d want to be speaking to First Actuarial on how to manage those “bucking bronco” liabilities!

And if I was a trustee concerned to make every penny in the scheme and every penny of my sponsor’s contributions work for my members, I’d want First Actuarial helping me out.


First Actuarial is a great firm- I’ve been working here for nearly five years and can say I’ve never worked happier. We are celebrating our tenth anniversary with a day and a night at Centre Parks, we’ll be working and playing and dancing and we’ll be bedding down in chalets in the Woburn Woods.

actuarial post

No wonder we’ve been nominated as Actuarial Employer of the Year. Wouldn’t you rather be working for us?

First Actuarial Students

First Actuarial Students

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

Steve Webb – a new model politician?




Let me declare an interest, I am a Liberal, born into a Liberal family in a part of the world where Liberalism is the natural opposition to conservatism.

Steve Webb is from that part of the world, his constituency 40 miles north of where I grew up in North Dorset. I would like him – wouldn’t I?

I remember the moment when it became possible that Webb might see power, it was when Nigel Waterson lost his seat narrowly (to a Liberal as it happened). The days following the general election saw Clegg as powerbroker. Had the Liberals joined labour to form a coalition, my political prejudices would have been satisfied but I doubted then and now that Webb would have been pension minister.

It was only because of the absence of expertise on the Conservative benches (Willetts excluded), that Webb could take the job. That and the fact that IDS is a charming collaborative man who could tolerate collaboration.


Speaking privately with Nigel Waterson, I got the impression that he is full of admiration for Webb. Graciously he has pursued an alternative roles as Chairman of NOW pensions.

Within pension circles, Webb is pretty well liked; other than the IFA boo-boys who troll their websites, there is an acceptance that this articulate, funny, balanced and decisive minister has got most things right and those things that he has got wrong- he has got wrong in a good way.

He’s had cock-ups, the false starts over the charge cap, the silly deferred annuity scheme he dreamt up with Alan Rubenstein and some naive attempts to take on the annuity industry prior to the budget. Clearly there are some things that the junior partner in a coalation (both in terms of party and department) can be excluded from. The Government Actuary knew about tax reforms before the Pension Minister and that doesn’t go down well with pension people.

But in all these things, Webb did not throw his toys out of the pram. The charge cap will be in place (as will be most of the pension reforms for workplace pensions) by next April. The ill-advised excursions into product design are morphing into strange synthetic products that may mutate into something useful , and his comments about annuities at least keep live the debate about whether anyone who bought an annuity in the years of QE was well advised. If there is a compensation bill- will it be HM Treasury that foots it?


But the Webb legacy will be felt most in his work on the State Pension  which will be simpler, fairer and better understood from 2016. Thanks to the triple lock, it will be bigger than it might have been but it remains “basic” and will continue to be for “old age” despite losing those badges. The options for women to catch up on contributions and the greater fairness to future generations for women are what make Webb’s work especially valuable.

I am hugely impressed by the way that Webb has handled himself since the Budget. As mentioned before, he did not throw his toys from the pram when the announcement was made. He did what any clever politician would do, and grabbed the initiative. Whether the Lamborghini was a deliberate distraction or a slip, Webb has made it his icon and in a strange way stolen a part of the Treasury’s thunder.

The Lamborghini and the meticulous work on the single state pension show that Webb is both a populist and a pensions teccie.

I was speaking to a payroll geek the other day and discussing the new auto-enrolment contribution bands. “I bet you wish your views were heard by the politicians” I joked. “They are”, replied my friend, “Steve Webb had lunch with us last week”.

For anyone who thinks Steve Webb a headline grabber, they should remember the unglamorous work he has put in on making auto-enrolment work for payroll. The Friends of Auto-Enrolment will testify to that.


His fellow Liberals have been slow to acknowledge him and I sense he doesn’t care too much. He is a great ambassador for the Liberal Party and if they had a little more sense, they hold Webb up for what he is- their greatest success of the parliament.

But Webb is rather less the party politician and more the pension statesman. In his dedication to the single cause of improving the lot of our elderly population, Webb has broken new ground. While Ministers for education, justice and many other departments continue to come and go, Webb has turned the pension brief from a shortcut to the Treasury to a personal fiefdom.

As Pension Minister, Webb seems neither a collaborator with Conservatives nor a scourge of the opposition, he seems what he is – a Pension Patriarch.


I think that Webb’s style of politics which involves an immersion in his department’s affairs, is hard to emulate. It requires all of Webb’s personal, intellectual and political skills to carry off.

But for politicians looking to rise above the mire and get the respect of those who are professionally impacted by their work, Webb should be a role-model.

I am a Liberal, I have not had much to cheer about these last five years, but I have had Steve Webb. Frankly that has been enough.

Posted in DWP, steve webb, welfare | Tagged , , , , , , , , , , , , | Leave a comment

The language of trust..Pension Play Pen Lunch- Monday


The Pension Play Pen lunch on Monday (Nov 3rd) will be led by Mark Scantlebury of Quietroom and will discuss the language of trust.

The point of the Pension Play Pen Linked in group is to get nearly 6000 people to work together to help restore confidence in pensions. We started out on October 30th 2009 so in our first five year term, we’ve got quite a number of people with different backgrounds,jobs and outlooks behind that general aim.

But we are still miles from restoring confidence in what we do.

In our view there needs to be a general cleansing. Much of this is going on. The work of the DWP in cleaning up workplace pensions is complimented by that of the FCA in cleaning up retail plans. The Pension Regulator is ensuring auto-enrolment works and sorting out the attacks of those who are trying to liberate pensions into their bank balances.

But the language we use about pensions is far from transparent.

Steve Bee in his latest blog- back to basics- mourns the loss of phrases such as “the basic state pension” and “the old-age pension” for a “single tier pension”. He is surely right, the state pension is basic, it is for those in old-age and the fact that it is now a composite of S2P and BSP is only of any interest to Pension Geeks.

There is a movement to ban the use of “pension” because it gives the wrong message. People like Michael Johnson believe that pensions are already dead and are happy dancing on their supposed grave. But people are not afraid of the word pension, they just want pensions to be fair and benefit those who pay into them, not just those who run them.

Mark Scantlebury’s consultancy, Quietroom, focusses on the language we use to describe what we are about and – all too often- Quietroom has to rewrite the words we write and teach us not to say things in the way we are used to say them.

My firm, First Actuarial, used Quietroom to make-over the way we talked about saving for old-age. they’ve had a profound effect, we’re forever pulling each other up when we use language that isn’t jargon-free and confronts our audience with expressions that are defensive and offensive.

I do hope that we’ll see you at the Counting House at 12 for 12.30pm. Typically the food and drink bill is £15 ,we wrap up by 1.45pm and it is always brilliant fun.


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“To meet the needs of those in the middle” – what pension consultancy should be about!

west was won2

The Advert

On Tuesday I am sitting on a panel with good friends; Otto Thoresen, author of the Thoresen report; Mathew Arends, Partner at Aon Hewitt, Duncan Buchanan president of the Society of Pension Consultants. The session will be chaired by Malcolm Mclean OBE.

The panel is the highlight of a day discussing the future of pension consulting and I believe you can still get tickets here

There’s a good supporting card including my buddies Simon Leyland and Peter Shellswell and some other people. They’ve even brought in that joker in the pack , Michael Johnson who I hope will do his party turn and tell us that pensions have no future. There’s nothing like Michael to boil the kettle.

The only thing missing is women – consultants don’t have to be male! I’ve put some pictures of some women in this blog to remind me that they are the people who generally get things done!

The Conference is  in central London and gives you all the tra-la-lah of CPD points so I hope I’ll be seeing you there.

The danger of uncontested scrums

The only problem with the panel is that it is in danger of agreeing with itself. Matthew is a fan of CDC (though he hasn’t quite got the point that it’s for people not employers- see yesterday’s blog). Malcolm is generally right though he works for Barnett Waddingham which is becoming an old folks home for retiring grandees, Duncan is a good man but spends far too much of his life devising tax-avoidance plans for the pension super-rich while Otto is representing a clapped out trade-body saddled with debt and a mutinous membership.

So I will find plenty to disagree on! I hope my colleagues will cast an equally jaundiced eye over First Actuarial and the Pension Play Pen. We need some genuine debate. Watching rugby with uncontested scrums (I’ve just watched England lose to Australia this morning) is a sad affair!

Where consultants can be so rubbish

I’ve sat on too many management boards of the consultancies I’ve worked for to have any respect for the way they are run. When the primary objective of a consultancy is to generate value for a small group of Founding Partners, then consideration for the other stakeholders –employers, trustees, members and yes- staff – is second order. The principle of the customer comes first cannot be subjugated to a spread sheet where the first line read is “margin”.

Where consultants can help

The future of pension consultancy lies in seizing the opportunities and managing them. That is not the same as exploiting them. The new pension freedoms offer us the Wild West. We can act as bandit or as sheriff, or we can be the guys who built the ranches and bring ordered prosperity out of seeming chaos.

west was won 3

There are a whole load of things we can do to make these freedoms work but if we start with a vertically integrated model which asks how many bps we can suck out of “funds under advice” , we will drag pensions back to where they came from – and that is not a good place.

I hope we can talk about the positive role that consultants can play to;-

  1. Construct products that engage, educate and empower people to organise their financial affairs in retirement
  2. Warn people off the scammers that beset our industry like the bandits and brigands that beset the ranchers.
  3. Ensure that we preserve the heritage of defined benefit provision- both funded and unfunded
  4. Promote pensions as things that serve the needs of people retiring and not the needs of the pension industry.

Where should our focus be?

All the panellists were asked to put down a few bullets about what they thought was important. One panellist struck me as hitting the sciatic nerve that should enliven the whole event, his bullet

(to meet) “the needs of those in the middle segment (too much money to just take the cash, too little to perceive value in seeking regulated advice” .

Consultants are not offering retail advice, they are working through those organisations that individuals rely on for the delivery of their retirement income, employers, trustees, unions, insurers and fund managers. They cannot both advise on and be the managers of the benefits for consultants have a critical governance role. They must remain unconflicted and properly independent to fulfil this function.

There are those who will serve the needs of those with limited funds and debt, those who will manage those with wealth but consultants need to focus on the vast majority of UK citizens who will reach retirement solvent but not comfortable. People for whom an acceleration of retirement income by 20% would constitute an economic miracle. I believe we can achieve such a goal.

I will be 53 in a few days, today the average person is providing themselves with around £1800 per year of private pension (based on median pot of £36k), if we could increase that to £2,000pa within five years – solely by making pensions more efficient – we would have done something worthwhile.

Increasing pensions efficiency by 20% over five years may be what we can do, but individuals, by saving more into the new and better vehicles we can hope that pension outcomes increase by very much more than 20%.

If I had a single phrase I could use to capture what 2015 will mean to me it would come from that quote.

“To meet the needs of those in the middle”.

west was won

Posted in actuaries, advice gap, auto-enrolment, dc pensions, defined ambition, drawdown, Payroll, pension playpen, pensions, Retirement | Tagged , , , , , , , , , , , | 4 Comments

Parliament debates CDC -with a twist in the tail!


If you are generally interested in the way Britain will develop private pensions in the next twenty years, I would strongly recommend watching the two sessions of the General Committee reading the Pension Schemes Bill,

The link to the video is here- fast forward the first two minutes that have no sound.

In particular I would suggest you watch the first session, which includes contributions from David Fairs of KPMG, Hilary Salt and Derek Benstead of my firm-First Actuarial, Stefan Lundbergh of Cardano and David Pitt-Watson of the RCA.

There are questions from a number of MPs including Steve Webb and Gregg McClymont and some healthy scepticism from Richard Graham MP

If I have one takeaway from the two meetings. If collective DC schemes are going to flourish in the UK, they will need to fix the problem with DC and the problem with DC is not just the “cliff-edge” of annuities but the lack of certainty from drawdown.

For those critics of CDC who want to hear answers to concerns about the communication of the benefit promise, listen to Derek Benstead’s explanation. For the views of Homer Simpson not Homer Economicus listen to Stefan Lundbergh. For a really good explanation of the employer’s position – specifically the desire of employers to use CDC as the back end of existing workplace pensions- listen to David Fairs. Finally, for a clear statement of why people can expect better outcomes from CDC than from annuitising DC schemes- listen to David Pitt-Watson’s opening remarks.

The second video deals with the Guidance Guarantee and has much to say about the Guidance Guarantee, especially from Sue Lewis , Chair of the Financial Services Consumer Panel. Jim Bligh of the CBI and Martin Lowes of Aon Hewitt speak of CDC but there’s is a different vision of the purpose of the collective. At one point Steve Webb interjects to suggest that it is infact the risk-sharing schemes that offer alternative guarantees to DB that might be of more interest to the employers Jim is talking to.

If my major takeaway from watching these two hours of video was that CDC is the answer  to the problems with DC, then perhaps Richard’s plea for a “default decumulator”  to which DC defaults can point will be an investment strategy, it will be a different kind of pension scheme.

It is the discussion in the final minute of the video (15.57) when Martin Lowes waves a flag for people with multiple dislocated pots and Sue Lewis a flag for the self-employed. These are the people for whom CDC has most to offer- and about whom we hear the least.





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

Cold turkey

cold turkey

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

My first worry relates to MAS’ independence.

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

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

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

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

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

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

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

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

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

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

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

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

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

My third worry relates to the customers of this advice.

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

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

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

My final worry is for MAS itself.

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

And now three questions.

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

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

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

Will MAS be bold and promote feedback from day one?

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

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

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

Can MAS pull it off and redeem itself?

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

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

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“Getting paid” – why advisers are shunning auto-enrolment

Source ; NEST Insight 2015



Amidst the back slapping as we pass 5m auto-enrolled into workplace pensions you hear little rejoicing from financial advisers. The majority we speak to are avoiding auto-enrolment for one reason- they can’t get paid for what they do.

A buy and sell-side problem

Financial advisers have a problem collecting fees. It’s systemic; most firms have developed around regular commission runs from insurers and asset managers. These payment structures bypassed the normal business practices of invoicing and dealings with HMRC over VAT. All this was taken care of by insurers (whose services were zero rated). The RDR took away the opportunity to use commission as a payment mechanism and the banning of consultancy charging meant advisers had to directly invoice employers if they wanted to make money from workplace pensions. Put bluntly- IFAs are not very used to this, nor very good at it.

Nor are employers particularly good at paying fees for financial advice. The OFT’s famous summation that they’d never encountered such weak buyers (as employers purchasing pensions for their staff) was partly based on ignorance about what fees they were negotiating. Employers are largely ignorant of what costs are incurred by IFAs and are reluctant to pay for something that they neither value nor understand.

A stark contrast with other business services.

While there is no line in the cash flow projection for “financial advice, there is a line for accountancy costs and another for payroll costs. The success of IRIS, Sage and other payrolls in selling auto-enrolment modules as an extension to payroll services is partly down to the ease with which a regular invoice can be adjusted. Similarly, it is easy for an accountant to adjust a regular bill to include services around the implementation of auto-enrolment.

While employers will pay legal fees to conduct due diligence on all manner of purchases, paying an IFA to provide advice and oversight on auto-enrolment is another thing.

Failing to engage

“Business as usual”, has a powerful inertial drag for all kinds of employers. Working for a firm of actuaries, I have no problems submitting invoices and getting paid on “BAU” because there are people within our clients who are primed to receive and pay these bills. But when the same work is billed for services for a DC scheme, there can be push-back, because there is neither precedent nor mechanism to pay.

In announcing auto-enrolment, Government stated that the costs to firms would be negligible. Businesses were not primed to pay bills, had they been, auto-enrolment might never have happened. But the failure of Government to engage employers with the importance of paying attention to pension was negligent. Even Steve Webb has admitted that he woke up too late to the implications of the OFT report – that employers were unable to protect staff from poor practice because they didn’t know what they were doing.

The problem is becoming critical

Till now, most employers have had workplace pensions, advisers and in-house personnel who know enough. But from the back end of 2015 we hit a wall of employers who have no history with workplace pensions. A high proportion of NEST’s customers who were surveyed as part of NEST Insight 2015, claimed that they made little attempt to compare NEST to any other pension. Worse, they claimed to have no means to do so. Instead of paying advisers, these employers bought payroll software, purchased NEST and hoped.

A way forward?

The only two suppliers who small employers will pay auto-enrolment bills to are the accountant/book keeper and payroll. Neither are interested in providing advice on pensions nor do they want to be dealing with the Pensions Regulator. They see insurance and regulatory risk a-plenty .Both are happy to see advisers do this “dirty work”.

Advisers will continue to struggle to get paid as part of BAU. They may have to accept that they are paid by payroll and accountants and settle to be sub-contractors. This won’t do much for the brand, nor the pocket. For most advisers, the attractions of advising on “freedom and choice” and managing wealth looks a whole lot easier.



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Who is going to support auto-enrolment now?


So far 43,000 firms have staged auto-enrolment, in 2015 45,000 employers will stage and in January 2016 alone over 100,000 firms will stage. Whereas most employers who have staged so far will have had workplace pensions and advisers, the 1.25m employers still to stage and the estimated 250,000 employers born each year, will almost all have to “choose a pension

Our first question is “who is doing the choosing and who is providing support”

In big picture terms it is payroll who are furthest down the line with IFAs not far behind. Accountants lag – but the detail is fascinating

Choosing a pension and communicating that choice is low on an employer’s “worry list”

But it is something that over three quarters of SMEs and Micros expect support on

When it comes to support, most employers want an intermeidary, preferably their accountant

Accountants know very little about auto-enrolment compared to IFAs and payroll bureaux

And they are not ready to help

Most of the help that is out there comes from IFAs and Payroll Bureaux

Payroll bureaux see auto-enrolment as a big opportunity, IFAs are not so suce and accountants are very dubious

Normally Accountants are nervous about working with IFAs

But when it comes to auto-enrolment, it’s a different story

Some conclusions

Though accountants are the trusted advisers, they will probably defer decision making to IFAs and Payroll providers who are hungrier for the business.

IFAs and payroll bureaux, have mostly got their propositions in order.

But they do not have a “choose a pension” service.

Of the 43,000 employers who have staged so far, 11,000 have staged with NEST, the majority of these were as a result of “non-decisions”.

We don’t think it’s good for NEST to be the only provider considered, it’s not good for employers and it’s certainly not good for workers, aims to be the obvious solution for IFAs, accountants, payroll software suppliers, payroll bureaux and employers to “choose a pension”.


If you are interested in being part of the solution- go to



Source for all graphics; NEST Insight (January 2015).




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

Meaninglessly big data.

Big data 2I don’t like this infographic, it just appeared on my twitter feed to attract me to an article that would lead me to the conclusion that I was helpless and needed the assistance of some organisation to create me a digital marketing strategy.

Big data has a lot in common with a certain kind or religion that also leaves me cold, the religion that tells me that I am an insignificant worm and that my life can only find meaning and worth by my bowing to an omnipotent but undefined entity.

So I was rather pleased when only a few tweets later, I discovered that Dilbert had said it all for me.

Big data

Needless to say, I won’t be contacting Fractalities this morning, but I thank them for the share and wish them luck!

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Protecting against losses is not the same as generating a profit – guest blog from Ralph Frank

ralph lion


The Swiss National Bank’s (“SNB’s”) decision to abandon the currency ceiling of the Franc relative to the Euro has drawn attention to risk management and hedging. The losers from the SNB’s actions, including retail leveraged trading platforms, investment banks and hedge funds (perhaps ‘directional funds’ is a more appropriate description in this case), became clear relatively quickly. The winners from the SNB’s decision have been harder to find.


A number of Swiss pension funds have been mentioned as beneficiaries of the move. They have indeed generated large gains from their positions going short foreign currency and long the Franc. However, these positions were not (in the main) standalone investment decisions but rather hedges against foreign currency exposure arising from underlying investments. The value of these underlying investments fell by a corresponding amount, in Franc terms, when the ceiling was abandoned. Overall, these pension funds were not materially impacted by the SNB’s decision as the funds had managed their foreign currency risk given their liabilities are Franc-denominated.


Hedging of interest rate exposure, be it nominal and/or real, has become a more common feature of the pension fund and insurance landscape over the last two decades. Those that have hedged their interest rate exposure have generated strong absolute returns from this activity, during a period of falling interest rates. These returns have offset corresponding increases in the present value of the associated liabilities, so the net asset/liability position (related to the hedge) has remained unchanged. A decision, whether intentional or unconscious, not to hedge interest rate exposure embedded in liabilities may be characterised as an investment decision more so than the decision to hedge. In the case of not hedging, the decision-maker has chosen to retain exposure to a risk.


The concept of the ‘risk/return trade-off’ considers the return generated for taking a particular risk. Seeking to protect against a loss, through hedging a risk exposure, is quite different to actively seeking a gain. Many large trade pay-offs generated this millennium have been the result of prudent risk management decisions. These pay-offs, while delivering positive cash flow, have not been outright gains but have offset corresponding losses elsewhere on the balance sheet of the entity putting on the trade. Had the hedges not been in place, the entity would have been proportionately worse off for leaving the risk unmanaged. Effective risk management can have a material impact much like that of profitable risk-taking, so why is the former so easily overlooked and the latter so widely lauded?

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“Greeks bearing no gifts” -Eamonn O’Connor on the power of a “pair of two’s”.


My friend Eamonn O’Connor, who is busy setting up City Noble, had time to share this little nugget. Far too subtle for this blog and a pearl before the Plowman’s swine Eamonn!

Plenty of posturing in Euroland at present:  the creditor nations resolute there can be no relaxation of Greece’s debt burden, the Greeks themselves, weighed down by years of austerity now reinvigorated by a decisive election outcome, seemingly up for the fight.
An apparently weak negotiation hand for the Greeks – highly indebted, in need of new funding, debt payments looming. The ECB on the other hand has merely to pull the plug and Greece is in default, Euro exit an inevitability.
The markets appear none too perturbed, bad news for the Greeks but plenty of QE on the horizon to ward off contagion amongst other peripheral states.
Well, perhaps Grexit won’t threaten the European project. Perhaps it’ll even serve pour encourager les autres, especially if the outcome is as nightmarish for the people of Greece as some envisage.
But what if it were to work? What if Grexit and all it entails – devaluation, currency controls, sub zero credit rating – actually sees the Greeks up on their feet in five or six years? Such an outcome is surely a bigger threat to the cohesion of the Eurozone. What then for fiscal discipline and austerity?
Greece’s hand may not be strong, but it’s still more ‘two pairs’ than a ‘pair of twos’.
For all the posturing and positioning, compromise will soon be in the air.

I have many Greek friends and no Greek enemies, for all the folly of their economic policy it is hard not to wish the Greeks well.

But then I’m not picking up the bill!


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Is NEST best?

noisy nest

Back-slapping all round

NEST launched its third Insight into the state of the UK auto-enrolment project yesterday. This was a land grab for AE glory. At the front of the pack was Joanne Segars whose NAPF hosted the event. Hopefully the NAPF will find a way to get involved in 2015, if only to help the 2012 stagers work out how to do re-enrolment!

While the NAPF led the way in the early stages, thunder was stollen by the beaming Laurence Churchill in his last public outing as NEST Chairman. Laurence used to be my boss and I’ve never quite forgiven him for it. But he’s done a good job at NEST and he’s got plenty of life left in him – so he deserved a hearty round of applause- Taxi for Mr Churchill.

Laurence’s lap of honour was eclipsed by his friend Steve Webb who did his now familiar wrap on his five years in government. this took the form of 8 things he’s done brilliantly and two things he’s left for his successor (who might be Steve Webb) to do next term.

Webb and Churchill have every right to be proud of themselves though if we’ve got another 100 days of this, I’m going to lose my temper.

That I didn’t lose my temper yesterday was mainly down to Tim Jones who is increasingly behaving like Dennis the Menace’s Dad and can best be described as a pantomime sergeant-major.


What NEST have discovered

Holidays remain the best way to spend (spare) money but saving comes second with short term saving still pipping longer-term saving to the post




how consumers spend

People seem to have gone off using their house as a pension, presumably they’ve worked out that you can’t buy a sausage with a brickauto-enrolment more popular

People are getting more confident about their pensionInertia is working

And employers are much happier about auto-enrolmentEmployers coping


The shape of things to come – it’s a bit like a loudspeaker with all the noise still to come!

challenge ahead







Employers are still needing intermediaries though it’s not clear who they’ll be


Intermediaries seem to have bought the idea of collaboration.Working together



All this high level stuff is very encouraging. It suggests that things are working out nicely but it’s only when you start picking into the detail that there’s some worrying information.

Here’s what the report has to say about employer’s purchasing

“Our research was only with small and micro employers using NEST,but, similarly to DWP’s research with a variety of different providers, we found that employers were reluctant to spend much time and effort choosing a provider. Some had been turned down by other providers. The majority had very quickly decided on NEST and had wither not considered any alternative or had only reviewed the other master trusts”.

If 66% of employers consider the workplace pension important, this can only reinforce the views of many that you can’t differentiate one from another.

As the OFT put itOFT


If NEST is going to be successful , it is going to be successful by inertia selling. We are currently trying to unpick the consequences of the inertia selling of annuities.

As I tweeted at the event

This should be something for NEST to be concerned about.

Nigel Stanley, who I like very much, made the point from the podium that NEST had done a job of  levelling up standards in workplace pensions and he may be right (in terms of governance).

However I am concerned that NEST has yet to sort out its ridiculous, failing reverse lifestyle strategy for younger employees (NEST Insight demonstrates that they are their most loyal -not most fragile customers).  I am concerned that NEST is not adopting PAPDIS (despite what Steve Webb implied) and NEST is a long way from implementing its response to the pension freedoms.

For the £400m it has costs us, NEST has got it all to do.

How to use NEST Insight

NEST Insight is a valuable piece of research which is ,like NEST itself, being spun to meet the political purposes of the DWP and wider Government.

It’s most interesting insights are into the changes in the needs of smaller employers and developments in the support that they can expect. The last ten pages of the report are valedictory with platitudes a plenty from the ABI,CBI, ,CIPP,IOD,FSB and any number of other acronymous organisations (plus Which and Age Concern).

Ignore all this boring nonsense and concentrate on the middle bit (pages 16-50 where the research on what consumers, employers and intermediaries are thinking and doing is really fascinating).




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What do I do with my defined benefit pension?

Thanks Scottish Widows

Thanks Scottish Widows


Many people have defined benefit rights (commonly called “frozen pensions”). Some people continue to build up defined benefit pension rights, most are in Government backed schemes. A large number of people are enjoying pensions from theses defined benefit schemes.

If you are receiving a pension , you are in a very strong position, because of “priority orders” you are the last group of people to see your pension reduced if the scheme fails. If you have yet to draw on your pension, you may not be so lucky. If your scheme runs out of money, you may find yourself with reduced benefits paid, not by your trustees, but by the Government safety net – the Pension Protection Fund.

If you are receiving an occupational pension , you cannot sell your rights to the regular payments and get a lump sum instead. There are moves to make this possible if have purchased an annuity but for employer sponsored schemes a “pension is a pension“.

But if you are still to receive your pension , you can transfer the value placed on your pension rights to another type of pension, one where you can take all your money however you want to.

You’ve always been able to take a partial transfer of your pension rights – up to 25% of their value (depending on the generosity of the scheme actuary who values these things). This is known as cash commutation.

You will  still be  able to take all of your pension as a transfer value, unless its in a Government  some unfunded scheme like the Civil Service pension.

And now , some schemes are saying you can pretty well decide how much of your pension you want paid as a “guaranteed” income and how much you’d like to do with as you please. This is going to be known as a partial transfer.

What’s best?

There is something that you as a member need to understand. Although trustees are supposed to act for you, they cannot always protect you from your taking the wrong decisions. It may be in the general interests of all members of the scheme, that choices such as transfer values, partial transfers and cash commutation are available, but it may not be in your particular interest to take them.

The Government want trustees to be responsible for ensuring that you get financial advice that is suitable for your circumstances but trustee organisations such as the NAPF are pushing back on this, saying that they cannot be responsible for deciding what is in your best interest on a case by case basis.

Only you can decide what’s best.

It’s up to you to decide what the value of the promise from the scheme is – TO YOU. You might want to work out how much it would cost to provide such a guarantee from an annuity (go to an annuity provider and get a replicable quote). You might want to work out how much you could draw from the transfer value and for how long (tricky but possible if you have a good adviser). Or you might put your finger in the air and make a guess.

I can’t tell you what to do. But I think in reading this, that you’ve worked out that putting your finger in the air and making a guess is a pretty poor way of taking a decision that will affect the rest of your life (and probably the lives of others).

Why Advice and Guidance matters.

The arguments that are raging in pension circles are about how to get people to engage with these questions , make informed decisions  and how they can make the best of the decisions they have made. What we call Engage-Educate-Empower.

It matters because if we don’t get this support right, ordinary people will become prey to all kinds of market forces that are anything but benign.

Let’s just look at some of the temptations out there;-

  • Some Employers would like you to take transfers from schemes – especially at a level lower than they’re worth – it’s called de-risking the pension balance sheet
  • Some Trustees would like you to do the same, it reduces the strain on the scheme’s finances and makes for an easier life
  • Some reputable advisers would like you to transfer money to their management so that they can earn a living out of helping you
  • Some scammers would like you to transfer money to their management so they can rip you off.

It is very hard to know what is in your best interest, very hard to know who is really on your side.

Everyone will tell you they are your friend, but who can you trust.

In my opinion, you can only trust yourself and your only way to protect yourself and your family from you making the wrong decision is by taking good quality advice from truly independent sources.

Such sources exist. The Government is launching a new service to help you with your retirement options, this service is called Pensions Wise. You can access it from one of 40 Citizens Advice Bureaux around the country or from the Pension Advisory Service.

The Pension Advisory Service (TPAS) is particularly helpful. If you have a difficult question (and these questions are difficult) they will probably refer you to a financial advisor or TPAS.

TPAS will – if they can’t answer all your questions refer you to a financial advisor, but it is worth taking guidance from TPAS in the first instance. You don’t have to wait till April, you can call them today and see what they say.



A note for employers and trustees

If you are reading this as an employer or as a trustee and you are responsible for communicating options to members at retirement, you might like to follow this video offered by the NAPF which explains what you need to be telling occupational scheme members about their new freedoms

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How did IFAs end up payroll experts?

IFA ae


In 2011 I started getting interested in payroll. Having read the automatic enrolment regulations it seemed I’d have to if my firm was to help employers.

In 2012 and 2013 and 2014 I was named among the top 50 influencers in the payroll world by – Payroll World.

This wasn’t because I knew about payroll, simply that I knew more about pensions than the people in payroll.

I managed to convince them that they were important enough to boss the people in pensions about a bit. Payroll administrators, like pension administrators, find it hard to throw their weight around, they generally get to do the work after consultancy and HR wonks have done the dirty on them.

I can’t say I can run a payroll today , any more than I could in 2011. But it saddens me that many IFAs have told HR and Finance managers that their payroll departments are not fit for the purpose of auto-enrolment when quite clearly they are (and the middleware propositions aren’t).

I’m not saying “all” but a great number of payroll operatives are furious that they have to play second fiddle.

If payroll can manage RTI and any number of benefit schemes, if can collect NI and pay over income tax, surely it can work out how to do auto-enrolment!

So how did IFAs ever get the idea that they knew better than payroll?

Well it all comes back to pensions, what auto-enrloment was supposed to be about!

The reason IFAs have assumed themselves expert is because they know a little more about pensions than payroll people and have used auto-enrolment as their Trojan Horse. Once the horse has been wheeled into the corporate services department, out we jump , waving our spears about and claiming authority over all things “pension”.

We all know the pension regulator and payroll don’t. We paint the Reglulator as a fine-thirsty monster who will stop at nothing to savage HR departments for a whiff of non-compliance.

Thus the subjegation goes. Payroll is forced back into the hole from whence it came and IFAs dance around the citadel  looting the treasury  and carrying off Helen and the rest of them.

But this is not sustainable.

At some point the penny drops!

IFAs do not understand payroll and if auto-enrolment is about payroll- what are these guys doing on payroll’s patch?

IFAs are supposed to do pensions but they don’t do pensions at all. They are telling everyone that auto-enrolment is about payroll (not pensions).

So some naive idiot in the payroll department pipes up “the emperor’s naked – these new clothes don’t cover the naughty bits- the tailor’s a fraud, the adviser’s a fraud!

Because you can only fool some payrolls  some of the time , not all payrolls all of the time. And when they stop feeling foolish, payrolls are going to get angry- get even and then we are going to have to have a very good story about pensions!

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