We’re on the road (to somewhere)

Posted on June 19, 2013 by henry tapper

We’re on the move

We are off to http://www.pensionplaypen.com and you’ll be finding yourself reading future pension blogs from there not here.

Why?

Money my friends! I can’t make any money out of wordpress and the last 930 blogs have been published withhout the valuable incentive of spondoolees from advertisers and the like.

http://www.pensionplaypen.com has got steady advertising and is a commercial site. Soon it will be launching “paid for” services to help companies onbard good workplace pensions and stay the right side of the Regulagtor in the operation of auto-enrolment.

It makes sense to bring the potential revenues from your valuable eyeballs to the attention of my advertisers.

Infact they are expecting you!

So how’s this going to impact you, my loyal readership. Well were this left to me, it would be a feckin disaster and you would be cussing the Plowman for leaving you in some dead-man’s gulch on the internet without so much as a bottle of Evian (note sinister product placement)

But thanks to my keymen Mr Andrew Walker and Mr Steven Weiss and with the able assistance of my ops director Mr Martin Condoer and my compliance and proof-reading friend Miss Hannah Clarke, this blog will migrate to http://www.pensionplaypen.com seamlessly over the next few weeks.

It might be typo-free by Christmas

It will not be killed off, it will remain a site of beauty, 920 blogs will be here as a testament to my loquacity and your loyal support. It will continue to showcase the awesome talent of Gary and the boys as up the football leagues we go and will have a more cultured theme befitting its no commercial intent.

But us pension folk are on the move and you’ll increasingly find yourself waking to the brave new dawn of http://www.pensionplaypen.com

As the poet put it

So this is permanent, love’s shattered pride.
What once was innocence, turned on its side.
A cloud hangs over me, marks every move,
Deep in the memory, of what once was love.

Oh how I realized how I wanted time,
Put into perspective, tried so hard to find,
Just for one moment, thought I’d found my way.
Destiny unfolded, I watched it slip away.

Excessive flash points, beyond all reach,
Solitary demands for all I’d like to keep.
Let’s take a ride out, see what we can find,
A valueless collection of hopes and past desires.

I never realized the lengths I’d have to go,
All the darkest corners of a sense I didn’t know.
Just for one moment, I heard somebody call,
Looked beyond the day in hand, there’s nothing there at all.

Now that I’ve realized how it’s all gone wrong,
Gottas find some therapy, this treatment takes too long.
Deep in the heart of where sympathy held sway,
Gotta find my destiny, before it gets too late.

Thanks Ian

Posted in auto-enrolment, brand, Henry Tapper blog, pension playpen, pensions | Leave a comment

If I were Steve Webb..

Posted on June 18, 2013 by henry tapper

It was good to see so much interest in my blog about bankers . I hope this wasn’t just from “banker bashers” and that there is some interest in creating better pension structures.

One person who read it commented

DA does not sensibly stand for defined ambition whatever that means. Indeed the essence of it seems to be that it is Undefined. And perhaps Unambitious as well. But most of the ideas swirling around do seem to be rather suitably – Deferred Annuities, in one disguise or another and with investment return etc sharing.

Whilst we cannot admit to looking back nostalgically at the world of with profit deferred annuities, perhaps we should look at how they could be made to work in a mass market compulsory” system

Another wrote to me

I don’t think auto enrolment should be derailed. But I have woken up to the fact that (a) it is an excessive imposition on small employers, who are very different from big employers, and not just a lot smaller (b) as Steve Webb always says and I understand Andy Seed said last week, the fact that big employers have managed to get most of their staff not already in their scheme to join it is a different kettle of fish from asking the other 1.2 million small employers to auto enrol their staff into saving.

Why not get them to do more, manage their workers diets, or having health checks? (which again larger employers or those with high earning staff can cope with arranging).

These comments come together in my thinking because tomorrow I must pretend to be Steve Webb and speak to an NAPF group on what I’d do if I were him.

If I were Steve Webb I would be proud of my achievement getting a unified state pension to the starting blocks and pleased that I had held a broad cross-party consensus on both the management of the DB run-off and the introduction of auto-enrolment.

But I would be fearful of 2015 and beyond, not just for my job but for the legacy that I might leave behind.

Cynics might argue that Webb is busy laying land-mines (pot follows member etc) for his successor. I did not say that – further criticism would see me on Tower Hill with my neck on the block, so no more on thst…*waves to Scottish Lifeco execs at traitor’s gate*

The big worry for me (as Steve Webb) would be that for all the fuss and bother I am putting the 1.2m employers who are yet to stage AE to- they’ll remember be and shout

IT WASN’T WORTH IT!

The hassle of AE can never be justified on any grounds other than the improvement in the pension outcomes for the 10.5m Britains yet to be enrolled.

Which means that we need to spend more time on improving the workplace pensions than we currently are today. We need more DA and less rubbish DC , we need higher contributions and more employer engagement. We want employers and their staff to be proud of pensions.

Yesterday, I spent all day working on a machine that will allow SMEs and micros to make good choices about their workplace pensions at a maximum cost of £500.

Our little group were constantly discouraged by the difficulties of assessing workers, choosing contribution structure, managing on boarding and setting up compliance systems to ensure smooth running of auto-enrolment, none of which has much to do with improving pension outcomes.

It was as much as I could do to convince them that auto-enrolment was a pensions thing.

This “wood for trees” mentality is only to easy to adopt. My inbox is full of offers from advisers keen to offer compliance services and empty with ideas about better pensions.

However, being Steve Webb, I will rise above such petty considerations and in my visionary state, proclaim that all that is needed for auto-enrolment to be a success, are proper workplace pensions to auto-enrol people into.

Well I did yesterday, though not with quite Webb’s pizzazz.

And my team looked at me with a world weary look and said

Yes Minister.

Making hard easy. (henrytapper.com)
“Fair and True” applies to the DWP too! (henrytapper.com)
Has Webb scotch’d the commission snake – or killed it? (henrytapper.com)
Who speaks for workplace pensions? (henrytapper.com)
A message to 1.2m employers who aren’t reading (yet)! (henrytapper.com)
Waiting for Dunkirk ; The Pensions and Benefits show #pb13. (henrytapper.com)
“Fit lean pension machines” – an uncomfortable prospect? (henrytapper.com)
“My word is my Eurobond” – pensions without banks (henrytapper.com)
“We don’t know what we’re doing”! (henrytapper.com)

Posted in auto-enrolment, pensions, steve webb | Tagged Andy Seed, Britain, Employment, Financial services, NAPF, pension, Steve, Steve Webb, Tower Hill | Leave a comment

“My word is my Eurobond” – pensions without banks

Posted on June 17, 2013 by henry tapper

Arthur Daley‘s famous pronouncement came at a time when the old institutions that underpinned the financial system, the credit unions, building societies , partnerships and mutual insures were being swept away and replaced by “Megabank”, that inhuman monstrosity of Alex’s cartoons.

Daley looked back to the days when one’s word was one’s bond and the future of CDIs and credit derivatives. If there was one figure fit to usher in this brave new world, it was Arthur Daley.

Today I hear that one of the last of the mutuals will be raising capital from the stock market in what is being called a “bale-in”. The Co-Op is hardly too big to fail and I fear it is too small to bale, it is easy meat for Megabank who must eye its relationships with its customers with some envy. Trust is hard won and easily lost.

Today is also a day when I am thinking forward (rather than nostalgically) at the value of mutuality in its purest form. There are still mutual models in pensions – BlueSky pensions actually sets its charges each year on the collective experience the year before, the States of Jersey Pension Scheme relies on a mutual agreement between the taxpayer and the beneficiaries of the scheme (there is a 70% overlap!). Some mutual insurers remain (Royal London and a handful of friendly societies).

However, the vast majority of pension benefits are now guaranteed and those guarantees revert either to banks or insurers. The insurers are typically reinsured and much of the risk reverts to the capital markets.Indeed the old concept of social insurance in which a risk is pooled with other risks and secured by mutual interest in the survival of the pool is almost dead.

Almost but not quite.

I am saddened when I read statements such as this

I think it unlikely that the pendulum will swing, in my lifetime, back to the point where employers bear the risks of longevity and investment investment performance. I would like to see some form of DA, but at the moment I think it more likely that this might come from employees taking some kind of insurance or paying a levy to ensure that the value of their pot is not eventually worth less than the payments in. Or possibly that a limited level of positive return be guaranteed.

My sadness is for the “definition of ambition” or more precisely for the paucity of ambition. We have become so obsessed with the paradigm created by Megabank that we consider a “limited level of positive return..guaranteed” something to aspire to.

Were we defined benefit schemes, our balance sheets would show a massive deficit between expectation and anticipated delivery. This deficit can only be filled by huge contributions and favourable markets (in which the fund must participate).

The idea that a DB scheme could , when so in deficit, exchange a growth strategy for a “limited level of positive return-guaranteed” is laughable. All that would do would be to crystallise the deficit and guarantee non-payment of some of the promised pension.

The only way (bar a cash-call on the employer) that a DB plan can return to solvency is through prudent management of the liabilities and some ambition to make the assets grow.

Our current obsession with guaranteeing pensions with annuities purchased at the current distorted rates is just another example of our craven capitulation to the capital markets. These guarantees we purchase are no longer insured by other retirees of the insurer who pool risk, they are simply backed by fixed income securities with tail risk reinsured by European or American insurance companies who themselves pass on much of the risk to the likes of Credit Suisse and Deutsche Bank who securitise it. Megabank always gets its cut.

We need to look back, not nostalgically, but with an eye to what worked. As John Kaye is keen to point out, defaulting on a building society loan was an event, credit was not available to the uncreditworthy and worthiness had to be earned. The system of credit scoring employed by the banks last decade led to the carnage of 2008 when it turned out that machines could not predict human behavior and human behaviour detoriated when it was accountable only to an automated credit rating.

The mutual model, unlike Arthur Daly’s Eurobond, does not rely on a specious banking concept but on genuine bonds that tie people, families, communities , industries and ultimately our national fabric together.

We need not look back, we can look sideways to our European cousins in Holland, Sweden, Denmark and Norway, all of whom use mutual models as a means of delivering social security.

Sooner or later the coin will drop. It’s beginning to drop already, look at the Nationwide Building Society adverts. The idea of breaking RBS up into regional units that put people and communities back into the lending picture is another example of mutuality reasserting itself.

Pension people need not be in thrall to the banks. Swaps are not free to pension funds (as asserted last week by SEI at #PP13 but pension funds can be free of banks if they fight hard and long enough.

The moment that we throw off the shackles of guarantees and re-embrace the principles of social insurance , mutual credit and inter-generational transfers, the sooner we will have Steve Webb’s vision for Defined Ambition.

We always moan that there is no single definition of Defined Ambition – try this

Pensions without banks

Opt in to certainty (henrytapper.com)
What a charge cap would mean for insurers (henrytapper.com)
A time for action not tears! (henrytapper.com)
Doomed Europe (blogs.reuters.com)
Ghana eyes $1bn Eurobond (blogs.ft.com)
George Soros Says Euro To Eventually Destroy European Union – OpEd (albanytribune.com)

Posted in Bankers, dc pensions, defined aspiration, pensions | Tagged Credit Suisse, Deutsche Bank, Eurobond, Financial services, Insurance, Nationwide Building Society, Royal London, Steve Webb | 3 Comments

All you never wanted to know about that Pension PlayPen GPP

Posted on June 14, 2013 by henry tapper

What are you on about now?

www.pensionplaypen.com is a website set up to help Britain’s 1.2m employers work out auto-enrolment, adapt their existing workplace pension or get a new one and manage “auto-enrolment for life not just for staging”.

As it’s the only website doing this, I can’t tell you if it’s doing it well or badly but it is free to visit and has no “garden fence” so as soon as you like, do pop over using the link and take a look.

And that GPP?

Rather scarily, one leading insurer has decided to break ranks and offer its flagship product to everyone – and at the same price whether you are BP or the local chip shop.

Why don’t you name the insurer?

There is no sensible answer to this. The rules that govern financial promotions are very complicated and we simply didn’t have time to get all the disclaimers and provisos agreed to name the offer.

So how do I get to find out who is behind this?

If you go to the offer which you can do by pressing here, and use the test payroll number 123PA00045678 (you’re going to have to write it down or cut and paste), you can get through to the offer itself.

Am I in danger of buying a pension if I press the wrong button?

As long as you use this test, we’ll know you’re just having a look around but if you use your companies own payroll number, the insurer will get an alert that you are in earnest!

Are companies using this for real?

Well it seems so, we have had some distressed stagers already and it seems that not everything in the auto-enrolment is Rosy (sorry rosy).

What kinds of companies?

The most common distressed buyer is the large company who had bought a great workplace pension in recent years but had got terms based on a slice of the workforce ~(typically the top-slice). Many employers are finding that the insurers are unwilling to take the less attractive part of the workforce.

Will your GPP provider take any workforce?

The answer is yes! So long as the employer is paying the minimum contribution for the scheme to qualify as a workplace pension, currently 1% of the “band” and the employee is also making minimum contributions, you’re in!

What’s the catch?

Well firstly, you’ve got to be self-serve. That means your company has got to contract with the insurer directly and set everything up on the phone or using other digital channels (like email). Secondly, this is not an offer that includes a black box that sorts out all the HR and payroll problems nor does it wave a magic wand and say you are compliant to the Regulator.

That’s a big catch!

Yes it is. It means that you either have to learn about your employer duties and DIY auto-enrolment or you are going to have to find an adviser to hold your hand. Www.pensionplaypen.com can teach you all you need to know about your employer duties and we do so in conjunction with the Pension Regulator whose pages we often link to, refer to or have just re-written (in playpenease).

Can I self-serve this black box and an adviser?

Yes you can, we are currently sorting out ways you can buy directly into a pure software solution or get a managed enrolment service using an adviser?

Is this you trying to sell that First Actuarial lot again?

Well it’s going to make First Actuarial money (eventually) but First Actuarial are not going to be running a managed enrolment service for www.pensionplaypen.com.

First Actuarial own a slice of the holding company and their analytics inform much of the technical side of the site but First Actuarial do not get a cut of the GPP action either as a finders fee or a commission and neither does the www.pensionplaypen.com

So why can’t I just go direct to the insurer?

You can! I’m quite sure that if you wanted to go to the insurer they’d be delighted to talk with you. The same could probably be said of most insurers. All www.pensionplaypen.com is a door (portal) to the insurer which makes it easy for everyone.

Hmm… maybe I could offer this kind of offer on my website.

Go ahead! www.pensionplaypen.com is as surprised to have the exclusive on this. We are genuinely amazed at the lack of innovation in the financial services industry. I would stop short of saying we are sorry that no-one else is using their imagination. It’s quite nice being the only person in the swimming-pool! We’re sure that other firms will set up their own www.pensionplaypen.com ‘s in time but in the meantime we are enjoying being one of one!

How do you make money?

Www.pensionplaypen.com will only make me and First Actuarial and my business angels any money if we get enough people coming to the site to make money from advertising. In time we expect to make more money from a “choose a pension” machine which employers will have to pay to use (£500), we’ll also be making money from selling a high level view of the decisions people take on the site to the people who do strategy and product development on the sell-side.

Can I send my clients to you?

Please do, we’re a common resource and we do not want to know our customers! Nothing personal but this is a self-service site and we don’t want customer relationships! That’s why you won’t find loads of data capture stuff on the site. We are not going to sell you or your clients into captivity with other providers/advisers.

Can I join you?

Yes you can! There are lots of ways to become a friend of the playpen. The best, if you’re on linked in is to join our linked in site – called Pension Play Pen funnily enough! We also have a company page on linked in and on Facebook.

You can register on our website to get our mailings (haven’t done one yet but I promise to do one over the weekend!) and you can contact me at henry.tapper@pensionplaypen.com.

If you have content you’d like us to promote, a proposition you’d like us to advertise or just want to have a chat, my phone is on (silent) and you can get hold of me on 07785 377768 (text me first).

Are you serious?

I have never been more serious in my life. We have smiles on our faces but that does not mean we are not in earnest and we won’t stop till the last of the 1.2m stagers has safely tucked their workforce up in the auto-enrolment bed!

When are you going to sort out the typos on the site?

Ah, a proper question at last! The site is full of typos and glitches and we’d ask you to be patient. Getting every typo sorted will happen and we will get better at getting better.

But the need for all this information and the tools and modellers (as well as the products) which the site is promoting is immediate. We can’t wait to be perfect, by the time we were perfect, many employers would have missed the boat.

So the typos will stay for a few more days but we’re on the problem. For every great road there is always a pothole!

The Regulator’s brilliant auto-enrolment website. (henrytapper.com)
The “advice gap” can and will be filled (henrytapper.com)
Get up! Stand up! For your pension rights! (henrytapper.com)
Bridging that advice gap – 43rd London Pension Lunch (henrytapper.com)
A momentous day for restoring confidence in UK pensions (henrytapper.com)

Posted in First Actuarial, pension playpen, pensions | Tagged Actuarial science, Facebook, Financial services, first actuarial, Human Resources, Insurance, pension, www.pensionplaypen.com | 1 Comment

Waiting for Dunkirk ; The Pensions and Benefits show #pb13.

Posted on June 13, 2013 by henry tapper

As trade shows go, #PB13 takes a lot of beating. 1000 delegates, a good no-frills venue and a humming exhibition space with as many as five concurrent sessions; speed dating, informal “board” meetings all under the auspices of the magnificent Jonathan Stapleton.

If anyone was dis-satisfied they certainly didn’t tell me! It was great seeing such a high proportion of people in the hall on the buy side and so many of the stands being used to promote best practice.

But while there is a new seriousness about pensions , the structural weaknesses of the industry were clearly evident. What was on display both in terms of “thought leadership” and technology was a little disappointing. Where was the breakthrough product to take us through auto-enrolment, who had the solution to the advice gap or the 2014 traffic jam?

Maybe we are “too busy for trade-shows” but I’m not so sure.

Too often I found myself on insurer’s stands asking where they saw themselves positioned for 2014 and beyond and getting back “lost looks”.

Steve Webb renewed his onslaught on the workplace pension providers and frankly some of them were looking punch drunk from the left jab of “pot follows member”, the right hook of the consultancy charge ban and the sucker punch that will be this autumn’s OFT review. If the default charge doesn’t result in at least one TKO, I am reading the mood wrong.

As I looked at the big players who were there- Towers Watson and Aon Hewitt, I saw and heard nothing that suggests that they will be major players in Waves 2 and 3 of auto-enrolment staging, those smaller benefit consultancies exhibiting were not advertising anything I had not seen at the #PB12 or #PB11 for that matter.

It’s the phoney war alright and it was Andy Seed of KPMG who seems to have captured the Zeitgeist of the day in his concluding comments when he went “off message” to warn against false euphoria on opt-outs and against any sense of complacency. We’ve seen the early skirmishes which have been won by large employers throwing money at the problem but our Dunkirk has yet to come.

“Fit lean pension machines” – an uncomfortable prospect? (henrytapper.com)
Risk-sharing starts with cost-sharing (henrytapper.com)
Final salary pension closures accelerate (guardian.co.uk)
Has Webb scotch’d the commission snake – or killed it? (henrytapper.com)
Making hard easy. (henrytapper.com)
Steve Webb’s water-cooler moment (henrytapper.com)

Posted in pension playpen, pensions | Tagged Aon Hewitt, Dunkirk, KPMG, pension, Phoney War, Speed dating, Steve Webb, Towers Watson | 3 Comments

Will no one rid me of this troublesome press? Mr Godfrey defends “Corporate Access”.

Posted on June 12, 2013 by henry tapper

Poor old Daniel Godfrey, the IMA’s CEO can’t seem to rid himself of the troublesome press who continue to hound him about the behavior of his member firms.

The scandal surrounds the estimated $5bn paid to intermediaries to give asset managers “access” to corporate big wigs so they can work out whether to invest in their equity and debt.

The scandal is that rather than pay this out of their own pockets, they pay for it out of a slush fund siphoned out of our savings. While fund managers claim that their fees are met from the annual management charge, it appears this slush fund is a “double charge” and forms part of the hidden fees that drag back fund performance and are largely responsible for the general underperformance of active fund managers.

I quote from a recent article by Steve Johnson in the FT

Fund managers are continuing to allocate a quarter of their $5bn-a-year commission pot to brokers that offer them access to senior company executives – despite a crackdown by regulators on this practice.

In March, the UK’s Financial Services Authority raised the prospect of multimillion pound fines for fund managers after discovering some were spending “tens of millions of pounds” a year of investors’ money on corporate access, in contravention of its regulations.

The stick may have been waved but to little avail as this year’s Thomson Reuters Extel survey, based on responses from 5,400 portfolio managers and buyside analysts, will show that 25 per cent of client commissions are still being used to reward brokers for providing corporate access, down just a fraction from 27 per cent in 2012

Naturally the IMA found it impossible to believe that its members continue to flout the law by simply rebadging “corporate access commissions” as “research”.

To no-one’s surprise the IMA had taken action which would kick the subject into the long-grass for a couple of years – (see glidepath comments below).

Mr Godfrey said the IMA had set up a working party to examine how research should be paid for.

And at the moment, the conversation is being conducted in the pages of the pink press, the FT, FTfm. Thompson Reuters, the FCA and the indefatigable Alan Miller of SCM Private.

But the reason this is not a consumer issue is because the supply chain between the fund managers and the end investor is so twisted by vested interest , so obfuscated by those who benefit from opacity and so sloppily regulated that the issue has sat in “the black box” for years.

How helpful it would be to the IMA if we could continue to have this conversation between ourselves and not allow it to into the wider domain.

So, in an attempt to prolong the mis-use of savers’ money, Daniel Godfrey has offered his private e-mail daniel.godfrey@investmentuk.org to head off any further comment

This has not worked . I quote the comments from the article as they appeared early yesterday. If you have access to the FT, you may wish to check out how the conversation’s developed since then at http://www.ft.com/cms/s/0/60836fc0-cdee-11e2-a13e-00144feab7de.html#axzz2Vk0vPN1I

Comments

Sorted by newest first | Sort by oldest first

1. ReportDaniel Godfrey | June 10 12:47pm | Permalink

I don’t want to bore others. Please feel free to email me daniel.godfrey@investmentuk.org and I would be happy to continue the conversation.

2. ReportMr City Insider | June 10 12:02pm | Permalink

Thank you Mr Godfrey for your comment. Why on earth should the cost of research be passed on to the fund ? – this is what happens at the moment anyway – whether disguised in extra dealing commission or paid separately as per your suggestion. As per Wikipedia, the AMC is ‘the fee that the fund company charges annually to manage the fund’ – if you really think that the job of the fund manager is not to research and decide the best securities, what are they being paid for?

3. ReportDaniel Godfrey | June 10 11:23am | Permalink

Mr City Insider – I think I know the answer to the question! And that’s why we want to see if there are better ways of paying for research. I don’t believe I miss the point, but it’s hard in a few words to express everything one might want to say. My point was that a new model might ensure that fund managers are only paying a transparent market price for research that they believe adds value – thus reducing costs for clients and improving outcomes. A new model might also either incorporate the research costs into the AMC or be structured on a transparent pass-through basis i.e. costs of research passed directly through to the fund. I can guess you would prefer the former, but although it might seem attractive to say “increase the AMC a bit to cover the cost of research that you’re no longer getting from dealing commissions as the cost of commissions has come down” this might be a blunt instrument especially if the fund grows in size.

4. Reportjbx | June 10 9:27am | Permalink

Worldweary gets a second from me. What a horrible game of mutual back scratching this all seems to be.

5. ReportWorldweary | June 10 9:07am | Permalink

Asset Managers paying for corporate access is wrong at so many levels it’s hard to know where to begin.

The Asset Managers are at fault for paying, the brokers are at fault for facilitating, the regulators are at fault for not stamping down (hard) on the practice and surely the companies are potentially liable for providing privileged information on a selective basis (I’d like to see them prove in a court of law that they did not).

But regardless of the rules, this is a clear failure of ethics and shame on you all for not seeing that!

6. ReportMr City Insider | June 10 9:01am | Permalink

Mr Godfrey – You seem to miss the point when saying that “work that adds value needs to be and should be paid for” – it already is being paid for, or at least your industry’s clients wrongly assume its already being paid for within the annual management charge. Before setting up your next quango, why not commission some IMA research asking the question “Do you expect to pay your fund manager extra for research or corporate access to the charges within the AMC?” – you won’t like the answer.

7. Reportad iudicium | June 10 7:14am | Permalink

I have no faith whatsoever in UK financial regulation. Everything is so utterly incestuous and “thieves” and “fraudsters” running major banks into the ground are never criminally prosecuted. They don’t even take their peerages off them. Lord “Idiot” of ….. So the chances of some real action on illegal corporate access payments is doubtful. Same people move around boards as NED’s, sit in the remuneration committees, making sure that the salary anti is upped constantly for the guys at the top, whilst those at the bottom struggle. Former regulators move into “fat cat” positions with banks they used to regulate with no criticism from neither the government nor the Bank of England . Its all so totally unprofessional with only the Treasury Select Committee hav.ing a serious attempt at disturbing the old boy network

8. ReportDaniel Godfrey | June 9 9:51pm | Permalink

That’s not what the Working Group’s doing. It’s looking at the way research is paid for across the whole market with a view to identifying whether the current model delivers benefits to clients that cannot otherwise be replicated and, if not, whether we can construct a proposed glide path towards a new model that has greater transparency and reduced potential for conflict of interest. Broadly speaking, investors should want fund managers to engage with managements of companies they invest in. The article makes clear that corporates are, also broadly speaking, not interested in paying brokers to arrange for roadshows. Work that adds value needs to be and should be paid for. What we have to do is identify the best, most transparent and least conflicted way of achieving that.

9. ReportMr City Insider | June 9 6:35pm | Permalink

Why is it necessary for the IMA to set up a working panel to distinguish right from wrong? The IMA must know that this is blatantly wrong and should not condone or fudge such merky practices.

I urge anyone reading this article to e-mail Daniel Godfrey and ask him just how long a glide path he would like to construct. For most of us the taking of money out of our savings is theft unless it has been agreed with the saver and authorized by the regulator. It is quite clear that the FCA does not regard the aforementioned slush fund which sits outside the AMC as legal, it is quite clear that the savers have no idea of what is gone and it seems clear to me that this practice must stop.

We do not need a glide path. If we apprehend a burglar we do not ask him to wind down his activities on a “glide path”, we tell him to stop and hopefully get him arrested.

If we are to get confidence back into pensions, we need to stamp this out. This kind of practice is clearly not universal but there is no way that anyone can do anything about this misbehavior without someone creating a lot of noise.

I intend to make a lot of noise and suggest that you send Daniel a lot of your noise too,

daniel.godfrey@investmentuk.org

Posted in pensions | 2 Comments

Not what’s in the pot but what it buys – Pension RTI

Posted on June 10, 2013 by henry tapper

We have got used to thinking about our DC pension pot as a cash value because that is how it is expressed on the statements we receive from the pension administrator.

If I were to get a DB statement, I would not expect my pension rights to be expressed as a cash amount (unless I ask for a transfer value).

I’d expect my DB statement to show my projected pension. I know it’s a guesstimate and that inflation could eat into the value but at least I know roughly what I’ll be getting

But when I get real-time information on my DC pension, I get a cash value – why?

What matters, we are all agreed is not what a pension pot is “worth” but what it “will buy.

I got a statement last week. A snapshot of my DC holdings at £100k today is meaningless, what will it buy in 2027 when I want to draw an income?

Forget about future contributions, were I purchasing an annuity today as an average Joe at 67 , what would I get as a pension?

You see they don’t want to tell me, they’d have to know the type of pension I wanted, know my state of health , my postcode and how many clubcard points I’d earned in the previous two years (ok I made that last one up).

Frankly you’d be reluctant to tell me the bad news (which is that my £100k even as late as 67 will get me about £4,250 pa (DB equivalent pension). I need at least £500,000 to be at the races in terms of the pension I will need to retire (I have many mouths to feed). I need to be saving at least £10,000 a year more than I am to get to where I want to be. I need a new job, a new lifestyle or new expectations.

I did this maths this weekend because I went to a talk last week where serious people were getting real about these workplace pensions we are either joining ,setting up or advising about. The seminar was about something called “GO!” , offered by Hymans Robertson who are a very smart pension consultancy.

GO talks about “Future-Proofing your pension”; giving you some certainty about the future by either empowering you to take decisions today or taking control of your pension planning (right down to organising how much you pay each month).

So that you can be pretty sure that whatever your level of involvement you have a plan that gets you what you want. And of course what you want is a replacement for your pre-retirement income, in the shape that suits you when you get to the end of the working road.

Oh and you’d like a side-dish of cash? Certainly Sir, that can be arranged but the main course? - A replacement income? We’ll be back with the menu.

Knowing what your DC pot is worth at 30 or 40 or 50 is frankly not that relevant. Just as with a DB plan, you need to know what you’ll be getting at 60 or 67 or 75 and that’s what’s so hard to predict.

Dr Debbie Harrison was speaking at the GO event and I had a conversation over the weekend over who should be accountable for the outcome of the DC pension.

Debbie’s view is that accountability rests with the fiduciary the person who does the governance, the person who sets and exercises the rules. As Debbie pointed out to me, that could be the Government, the insurer, the trustees or an independent committee set up by the employer. “Too many cooks” with the likelihood of confusion.

What is clear to Debbie is that while we are able to tell people what they will get today (with provisos about annuity rates), we have no wish to. The news is too horrible – people feel they would be donig more harm than good.

I’m sure that this is right, if the information is dumped on people in the wrong way. Simply telling people their pension plan is inadequate without giving them help to make it work is not helpful.

Much of what GO is about is making it possible for employers (who have plenty to lose if people can’t afford to retire) to speak candidly with staff about what retirement will look like and help their staff back onto their feet.

I think Hymans are right to give the employer the Fiduciary role, I cannot see any other agent being able to have those tough conversations, employers do tough talking with staff.

The alternative version of Pensions RTI is to tell people to get enrolled and everything will flow from that. This seems to be the Government’s chosen role.

And of course everything will be alright if enough money is invested in the right way to buy the right pension at the right time. Which is what “future-proofing” is about. But that needs some tough conversations between an employer and staff.

It is not alright to enrol people and leave it at that.

Let me paint the picture of what a future looks like if you put off the conversation with your staff (and/or yourself).

Over the years between now and retirement, the bad news will start building up. There’s going to be a “future-proofing bill”. It’s imaginary but no different from most of the other bills that arrives (as it will be ignored).

If that bill is ignored there is going to be no pension at the other end (to meet expectations).

The Future-Proofing bill is the contribution needed to be paid to keep your pension on track to meet your retirement expectations .

It will fall on your fantasy door mat every year as it falls into the genuine post-trays of employers with DB plans.

You would not look forward to the “Future Proofing” bill arriving through your letter box, because if you expect to get yourself and your family a replacement retirement income of more than 30% of your income, it will be one of the biggest bills you would get.

If you ignore that bill , next year’s will be even bigger and so it will continue.

The Future Proofing bill may look like a payroll-busting 15%+ of your salary every year till retirement. Retirement may have to look closer to 75 than 65 or else you are going to have to seriously lower your expectations.

For me, the Fiduciary process starts with “expectation management” and that is a really tough conversation to be having with your staff. Telling people that joining a pension plan with a 1 and 1 contribution structure will be enough is not having that conversation.

Getting people to sign up to a service that takes an imaginary bill into a real bill that gets paid by payroll deductions is a huge thing. But I believe people will sign up to this kind of “Future Proofing” if you , the employer, have the conversation.

Enrolment is not enough, people need to get wise to the real pain of pension provision and start thinking about pension contributions like they think about the rent or the mortgage payment or at the least as the HP payments on the car.

And telling someone that their pension is “worth “£10,000 or £20,000 or even £100,000 is not having the conversation, because that is a meaningless number. Telling them that £100,000 will buy them at 67 £4,250 pa DB equivalent pension is a tough conversation but it’s a real one. Slide the cursor back and see how that £4,250 number falls if the pension is paid from 65 or 60 and the conversation becomes tougher still. And how many people have £100k in their DC pots when they get to 52?

Providing DB pensions is really painful. companies have to make tough choices, many jobs have not been created so that DB pensions can be paid; plant has not been developed, research not been carried out, dividends have been reduced so that pensions are paid,

So why are we shying away from these tough conversations with our staff?

Because we have given up on DB , do we thing the problem has gone away?

It hasn’t, in fact it has got worse. The cost of that DC pension pound is probably 40% higher than the DB pension pound (simply a matter of efficiency). The payments into the DC pots are less than half into the DB pot.

Much can be done to make DC move towards the efficiency of DB so that the cost of the DC Pound converges on the DB cost but that doesn’t solve the funding dilemma.

Thank goodness firms like Hymans Robertson are talking about future proofing in terms of having that conversation, delivering proper information on the state of someone’s pension planning and offering a management service which furture-proofs people’s retirement income.

This is real Fiduciary Management. Firms who embrace this kind of program will need to be robust with their staff about what such programs mean.

They mean facing up to the reality that what has happened in the past almost certainly puts people behind relative to what they want for the future and what they have to do in the future may mean trading down on the car, not moving to that posher house and having to work for longer for less (net pay after pension contributions).

The sooner we start having these conversations the better and as a first step we can stop giving people false hope by quoting telephone numbers at them by way of cash accumulation.

It is not what your pension pot is worth that matters, it’s what it will buy. Right now pension pots don’t buy much, let’s hope things get better.

But we must start with today and progress.

Progress means talking straight with people, it isn’t always pleasant but it has to be done.

Opt in to certainty (henrytapper.com)
Bridging that advice gap – 43rd London Pension Lunch (henrytapper.com)
Retirement income almost 40% less than working wage for new pensioners (guardian.co.uk)
Those Dutch Pensions – a Civil Servant writes (henrytapper.com)
Making hard easy. (henrytapper.com)
Self-employed suffer £90,000 pensions shortfall (guardian.co.uk)
Begin the countdown to your pension (scotsman.com)
Public sector pensions ‘will be reduced by a third’ under reforms (guardian.co.uk)

Posted in advice gap, auto-enrolment, pension playpen, pensions | Tagged DC Comics, Debbie Harrison, Defined benefit pension plan, Fiduciary, Government, pension, Pensions in the United Kingdom, Retirement | 6 Comments

In a muddle about investment management fees

Posted on June 9, 2013 by henry tapper

I am a fan of a firm of investment consultants called Lane Clark &Peacock LLP, who true to their brand statement provide “insight, clarity and advice” on pensions matters.

I am also a recurring pain in their neck and I expect one dark night on Old Burlington Street I will be bashed over the head with one of their weighty actuarial tomes for my insolence and rank ingratitude.

Nevertheless I am returning once again to do some mild LCP -bating; starting with the preamble to their 2013 “investment management fees survey”

Focusing on fees has never been more important than today. Against the background of an uncertain and low growth environment, paying high fees will significantly impact your fund’s performance. The survey reveals that pension funds are losing out as market movements generate more than 2.5x in fees for managers than their performance.

Fallacy one; fees are more important in a low growth environment. This is tosh; 1% of £1m is £10,000 whether it represents a quarter of the growth of the fund or one tenth. £10,000 has to be earned and paid by the sponsor of the pension fund and it is no easier or harder to earn that money in a low growth than high growth environment. It’s a lot easier to get people to pay attention to a fee that represents 25% of growth than 10% but the fee is equally important whatever the environment.

And if anyone thinks that all this fees hull-a-bulloo will blow over when we get some market growth back, they are sorely mistaken

Fallacy two; The survey reveals that pension funds are losing out.

The survey reveals nothing unless LCP let you read it. To read it you have to fill in a form which is vetted by LCP.

The form has a number of compulsory fields;

First name is mandatory
Last name is mandatory
Title is mandatory
Email address is mandatory
Email address type is mandatory
Company is mandatory
Job title is mandatory

Whoah – and I just wanted to find out what I was paying for my funds like I’m told to!

There are a number of voluntary fields including one that asks your relationship with LCP with the following drop-down options “Client, Ex-Client, Intermediary, None”.

Sounds a bit like linked in who will ban you if you try to link with people you don’t know!

I wonder how many intermediaries are going to risk being rejected by submitting a form to “register for the download”. I wonder how many people who have no relationship with LCP will dare?

Well I am a lucky one and I have had the pleasure of reading this survey including this message from Will Goodhart

Clients and potential clients should know about the full range of types of fees and charges which will be applied against their assets.

Will is the CEO of the CFA Society of the UK, which, according to its website

“serves society’s best interests through the provision of education and training, the promotion of high professional and ethical standards and by informing policy-makers and the public about the investment profession”.

Which begs my question

“if what we are all trying to do is be transparent about fees, why can’t everyone see the report?”
TM (pending) Henry Tapper (not to be reblogged or even read by anyone I don't like or I'll jump up and down and cry a little)

The report itself is beautifully presented over 38 pages; it contains a particularly nice photo of Andrew (Andy) Cheseldine who sounds as public-spirited as Will Goodhart

Pension charges will continue to be put under the microscope by politicians and press alike and rightly so. Our job at LCP is to help ensure as much transparency as possible , identifying what separate charges and costs apply.

The substance and value of the report is some great data crunching and data presentation that shows just how wide the gap is in charges between the “cheap as chips” beta managers and the hedgies.

“The annual management charge for a fund of hedge funds mandate is 10 times the equivalent fee for either a passive equity or bond mandate”

The report points out that we can only guess at the true costs incurred by hedge fund managers who for the most part can’t even bother to have the conversation.

To test this I did a little market research on a group of three “hedge fund managers” parenting children playing in a cricket game yesterday. In answer to the question “do you tell your clients what you charge them?” I got a unanimous response

“f**k off”

It is a truth , universally acknowledged, that the more money you make, the less inclined you are to tell people how you made it.

I am not quite sure what the CFA has in mind as “best practice”, but the response appears to be “market practice”

And while the report is brilliant in charting the “knowns”, it admits to not knowing much about “transactional costs” (aka hidden fees)

Over 65% of respondents provided no transaction cost information and, as such, there is insufficient data to conduct a meaningful analysis.

“As such?” – as what?

Can I direct the honourable gentle people to this link http://www.trueandfaircalculator.com/

If they press this link, they will be able to find the data that is provided by Morningstar on the funds of the fund managers listed on pages 36 and 7 of their report.

The true and fair calculator will give LCP data on the “Estimated Annual Cost of Fund Manager’s Buying & Selling” going into the detail of portfolio turnover rates and dealing charges.

This information is provided free by the owners of the Calculator (Alan and Gina Miller) and there is absolutely no need to “register to download”. It is total nonsense to suggest there is not enough “meaningful data” to conduct a meaningful analysis. Just ask!

Which begs a further question

If the information that LCP cannot publish in a report that we cannot access is freely available on the web, could LCP be doing its job better?

I’d say

“No and yes”

No, because this is a great report and I’d love to scan every page below to show you what it shows me about the behaviours of differing types of investment managers. I don’t because I have read the disclaimers on the back and am probably pushing it as it is.

Yes, because LCP (and other consultancies) need to stop being so anal about their “intellectual property” and share it with all of us as Alan and Gina do.

There is still stuff that commands a premium price, some market intelligence which I and others would pay for. LCP produce a fair amount of it.

However, the cost of the funds that we as retail investors, institutional investors or those who advise investors, are in the business of using, is not something that anyone need pay for and the ABI, IMA, NAPF, SPC, FCA, CFA and I suspect in the final analysis LCP, know that to restore confidence in funds investment, we need to be TRUE AND FAIR.

Debunking the RSA myth that Dutch CDC provide better outcomes (henrytapper.com)
Heavyweight support for CDC – the Dutchmen strike back! (henrytapper.com)
Councils paying hundreds of millions to City fund managers for staff pension funds (telegraph.co.uk)
Retirement income almost 40% less than working wage for new pensioners (guardian.co.uk)

Posted in Retirement, actuaries, investment, workplace pensions | Tagged pension, Business, Mutual fund, Investing, Fund, Pension fund, Total Expense Ratio, Hedge fund, Alan, Asset management, LCP, Burlington Street, Lane Clark & Peacock, Economic growth | 2 Comments

Abbey Road Studios – WOW!

Posted on June 8, 2013 by henry tapper

Look at this guy!

Look at his machines

Down there is the piano on whcih Macca played Penny Lane, a battered Steinway upright with the keys worn to the wood.

Down there a Hammond organ ripped out of a church on which generations of recording greats have played.

Abbey Road never chucks anything. Kit sits in cupboards awaiting the next generation of musicians keen to recapture the texture of pre-digital sound.

There is digital stuff here but it sits shamefacedly next to the magnicent analogue consuls. No touch of a mouse on these, but row upon rows of switches and nobs , all with a purpose, none forgotten.

Look at this place!

Is there a greater monument to our cultural heritage over the past fifty years? There are the great halls and the little caverns, some museums some still live.

But I’ve never been anywhere in Britain that so caught the zeitgeist of our last fifty years than Abbey Road Studios.

And it’s great that it’s filled with guys like Jamie and all the others I met on a great day out.

Shine on You Crazy Diamond – 31 May 2013 (floydfriday.wordpress.com)
The Hammond Organ LIVES!!! (patpress1.wordpress.com)

Posted in Music, pension playpen | Tagged Abbey Road Studios, Hammond, Hammond organ, Organ, Penny Lane, Piano, Steinway, Steinway & Sons | Leave a comment

John Kay has not left the room.

Posted on June 6, 2013 by henry tapper

I had read Professor John Kay‘s Review of UK Equity markets and long-term decision making but it wasn’t till I heard him speak yesterday that I “got it”.

Kay’s concern for the state of the UK financial services market goes much wider than his comments on the dysfunctional UK capital markets. His two themes yesterday were the growth of the trading culture and the impact of increased intermediation.

The simplicity of Kay’s remarks is obviously born out of deep thought . If you get a chance to listen to this man, do so.

To get a view on his style, try this video.

Kay’s basic premise is that there is an asymmetry within the financial systems that rewards those within the financial services industry at the expense of those outside it.

Kay thinks in terms of ”what pays” and thinks from the point of view of society rather than any interest group.

Investors’ returns are kept small by the “extraordinary” chain of intermediation in financial services – from custodians to consultants to platforms and more – which all have to be paid.

“The amount they take out of the chain in a low return environment can be the totality of what is generated by the chain,”

Kay also suggests that stock markets are no longer effective in their role to raise money for users of capital. He claims few companies go to the stock market to raise capital and argues those that do view initial public offerings merely as a way for employees and early stage investors to cash in their shares.

“The paradox is that stock markets are not a means of putting money into companies, but a means of getting it out,” .

Clearly his remarks did not resonate with all at yesterday’s meeting. Indeed the copnference’s host , assuming John had left the auitorium was keen to distance himself from the central thrust of Kay’s address.

He prefaced his remarks ” I can say this now John Kay has left the room…”

But John Kay had not left the room and in a pantomime moment, the audience made this perfectly clear.

The site of this imposing man standing in front of the stage facing his critics mingled farce and dignity in an enervating way.

The financial services industry needs John Kay and it needs him within the room not out of it. We need structural reform that makes the financial services sector and the people who regulate it, more effective.

The financial services sector has not performed the basic tasks it is supposed to do very well in the last ten years. It has however made the insiders , like those in the room, very rich.

I agree with him that this situation is not sustainable and that better ways of doing things need to emerge.

For this to happen, we need to dis-intermediate, simplify and re-appraise what we are doing.

Thanks to Russell Investments for hosting an amazing day at Abbey Road Studios. I felt like the 5th Beatle!

Posted in Bankers, governance | Tagged Business, Employment, finance, Financial services, Investing, John Kay, John McKay, Scotland Tonight | 2 Comments

A time for action not tears!

Posted on June 5, 2013 by henry tapper

Yesterday I was kind to insurance companies; this was a PR mistake.

My inbox received a number of reproofs reminding me of the shoddiness of insurance company practice – in particular their reliance on “embedded value”.

Fortunately these did not include a broadside from Con Keating but I live in fear of the great man’s vitriol when he discovers I was shedding a tear for the life actuary who wrote

Henry, the Embedded Value write offs if the cap comes in at 0.5% will be in the £bns

“Embedded value” is the insurance industry‘s preferred metric to value itself. What happens is they look at their present income streams, project these forward over a number of years and then settle on a nominal valuation based on agreed assumptions.

Sounds familiar? Well of course this is the way we used to value occupational pension schemes until we decided we couldn’t take a view on the future and had to assume the world stopped tomorrow.

Capping the maximum an insurance can take in revenues from its existing book of business has a terrible impact on its value as the valuation is based on this never happening.

Deep inside insurance companies there are of course actuaries who stress test worse case scenarios and capping future income streams sits pretty high up on the list.

It is so scary because , unlike the charging structures of the thirty years preceding stakeholder (where insurers protected themselves through a massive charge on “initial units” purchased in a policy) the pension plans sold by insurers since the introduction of stakeholder pensions need the future contributions to be delivering a healthy margin.

And because the margin increases over time (as the cost of the sale falls away and the value of the management charge increases with the value of the assets) , the whole edifice is dependent on a non-interventionist approach from Government.

Until recently, Steve Webb has been very consoling towards life companies, he has explained to his adoring public that so long as pension plans are like cans of baked beans, we can decide on the price we are going to pay for them by looking along the supermarket shelves and working out the pence per 100g.

I don’t think those who ran the corporate propositions of the life companies were very flattered by the analogy (I don’t suppose the suppliers of superior baked beans were either) but no-one got very worried because the net result was that insurance company’s embedded value was not affected. The warehouses full of baked beans still to be sold would not be marked down.

But then along came Gregg McClymont and Ed Milliband and Ed Balls and their favoured Rottweiler - the OFT - was unleashed. And along came a consultation on a charge cap on the default fund of qualifying workplace pensions.

Which brings me back on topic.

The imposition of a charges cap which impacts on the existing book is analogous to the behaviour of the DWP when it changed the rules for the revaluation of pension scheme liabilities (RPI to CPI). The change fundamentally changes the rules, not just for the future but for the past and it is the retrospective impact of a charging cap on the unprotected pension books of the insurers which is getting them so worked up.

So does this matter. Well yes it does. Any analyst working in the City with an eye on the share-price of an insurer who has written large amounts of unit-linked pension business over the past fifteen years should be getting excited. The analysts should be looking at the embedded value calculations and be working out just how much of the projected future profit is based on income streams of more than 100, 90, 80 ,70 ,60 and 50 basis points.

Because the haircut that they will have to apply to the share price will be based on anything from a number 4 to a number 1 set of clippers accordingly.

And this is the “sins of the fathers” bit. Much of the AMC above 50bps attained by the insurance companies was not retained by the insurance companies, it went straight through the system like a late-night curry and the money is now sitting in the bank accounts of the golf-clubs and the car salesrooms frequented by their distribution teams.

Horrible though it is to contemplate, those who devised, implemented and profited from these strategies are mostly gone, those left to face the consequences are of another generation. Which is why I had some sympathy yesterday.

But the fact remains that the “embedded value” calculations were inflated by some insurers who bought business through the AMC and now face a reduction in the embedded value unless they can argue that the “advisers” are still advising.

There are literally tens of thousands of company pension schemes which have commissions in payment or have AMCs based on commissions already paid, which are now orphaned.

The IFAs have flown the nest, finding RDR too tough either because of the exams or the disclosures or because the “easy money” tap from the insurers had been turned off. And the end of Consultancy Charging is no more than a second lock being put on the door.

There are life companies who did not pay commissions on pensions and those who offered the bulk of their book at prices well below 1% pa. They have little to fear by a pricing cap.

But for those with high historic pricing there is a job of work to do and there will either be compliance or a very good explanation going forward.

But in the meantime, the life companies with large numbers of schemes with highly charged default funds need to be taking immediate remedial action. The going is getting a lot tougher and don’t be surprised to hear some very awkward (public) conversations over the summer.

What a charge cap would mean for insurers (henrytapper.com)
Pensions for nothing and advice for free (henrytapper.com)
Ten sexy stats that drive pension firms wild! (henrytapper.com)
Making hard easy. (henrytapper.com)
Those Dutch Pensions – a Civil Servant writes (henrytapper.com)
Pot noodles member (henrytapper.com)

Posted in auto-enrolment, pensions, workplace pensions | Tagged pension, Steve Webb, Financial services, Insurance, AMC, Henry, Embedded value, WellPoint | 3 Comments

Risk-sharing starts with cost-sharing

Posted on June 3, 2013 by henry tapper

This lunchtime we will be debating pension charges at 
the Pension Play Pen lunch (50 Cornhill). 
This blog may help in organising my thinking
and perhaps your thinking too!

The terms of the debate about the charges cap that the DWP will be consulting about later in the year are not clear.

Steve Webb says that he will be consulting on the maximum charge that can be levied on the default fund of a scheme qualifying for auto-enrolment and explicitly links this to work currently carried out by the Office of Fair Trading

In January, the OFT launched a market study to examine whether defined contribution workplace pension schemes are set up to deliver the best value for money for savers. A key aspect of its investigation is whether there is sufficient pressure on pension providers to keep charges low, and the extent to which information about charges is made available to savers. (DWP press release May 10 2013)

Let’s do a little myth-busting before I launch into my triple wish-list from the investigation and consultation.

Myth one – this is not stakeholder II ; The terms of the debate are still couched in the language of pre 2000 provider bashing that led to the stakeholder pension charges debacle. The stakeholder charges cap ended in failure because it capped all funds and stopped individuals investing in a stakeholder plan and using more than plain vanilla funds. Aegon among others have been pointing this out but the same press release makes it clear that the cap is only being considered in relation to the default fund

Myth two – pension charges are too high; What’s worrying is not the general state of pension charges, the ABI and Towers Watson have both pointed out that the average default fund for the early stagers is costed at below 0.4%pa. The difficulty is that it’s pot-luck whether you find yourself in a scheme with low costs or a prey to something shockingly more expensive. The issue is one of consistency.

Myth three – Pension charges will continue to fall as auto-enrolment is rolled out; Currently there is very little information to savers about who is paying what. In the worst cases, the member of a workplace pension is paying for everything, including phantom services he or she may never see (like face to face advice delivered year in year out).

Many of the new schemes have priced out the costs of auto-enrolment and advice from the charge the member pays and they’ll have to going forward now that “consultancy charges” have been banned.

But providers are currently staging employers with a great deal of in-house expertise whose need for hand-holding is limited. There may well be something of a land-grab going on with some providers offering services at below cost to get themselves the scale and reputation they need for the rest of the journey.

Either way, there is increasing concern that offering the kind of support given to the big boys, is not going to be achievable for the smaller stagers without either the price going up or the service level decreasing.

Without the capacity to pass on these costs to the member through the consultancy charge, the provider will have to ask for fees from the employer or swallow the loss from current margins.

What we are talking about here is a risk transfer back from the employee to the employer; the first such transfer in that direction since the process of attrition against DB plans started in the late 1980s.

Member charges may not go up, but the price of operating a workplace scheme for the employer is likely to increase

Now for what I want to see from the investigation and consultation in terms of practical changes

PREFERRED OUTCOME ONE; My first preferred outcome from the OFT review and the subsequent consultation on a charge cap would be for the DWP to establish a framework that fairly apportions the costs paid by employer/members and those born from a reduced provider margin .

A charges cap must be set in this context and clearly demonstrate what it is reasonable for the DC member to pay for himself and what not. Alan and Gina Miller’s true and fair calculator (especially the advanced section) lays out all the components of the cost of a funded pension from fund charges to platform charges to contract charges.

Simplifying these charges into a bundled AMC has advantages so long as that process doesn’t simply allow all parties to lump the entire cost on members. We need a more granular approach which will have to be agreed at ABI/IMA/NAPF level and it has to start with first principles – what are acceptable charges for a member to bear ;- anything else should be born by the employer.

PREFERRED OUTCOME TWO; Stop treating this as just a contract-based problem;- let’s get tough on trustee extravagance ; no special pleading from large unbundled DC plans

A second point is this, we should not assume that because their are trustees, members are being protected.

To give one case study, the BT retirement plan was set up under trust to provide members with a blue-ribbon DC pension. It didn’t, the administration was expensive and inefficient (BT outsourced to Accenture), the fund management costly and forgettable.

By comparison, the company negotiated a great deal with Standard Life when they switched to contract based and the members are now getting more for less under contract. The reward for employers who get great deals is earned over time but the DWP could do more (through PQM type accreditation, to encourage large and medium schemes to beat the charge and give members more for less).

I spoke with one pension manager last week whose pension AMC is in some case over 1% because the default costs 70bps (a trophy DGF) and the scheme uses a large actuarial pensions administration service. They have a huge scheme but were complaining that they would have to reorganise it using a bundled solution to .

In this case I had no sympathy. Like BT, the trustees of this company will have to go back to first principles. If their extravagant options are to be maintained, they need to be subsidised by the sponsor if the default is to get below a meaningful cap (generally taken to be 0.50%. The cost of sponsoring half a percent of the fund may be half a percent of the contributions year one but it grows exponentially from there on.

The days of paternal trustees making these extravagant purchasing decisions may be numbered. If the cost of the charges was expressed as a % of the contributions it could soon reach 10% of the contribution (the charge is on the fund not the contribution).

Even if the company did provide a subsidy on the costs of the charges, would this be acceptable when the alternative might be a lower charged scheme with a higher employer contribution?

This is the kind of information that should be put in front of members of DC pension schemes. A consultation that succeeded in getting member approval for extravagant charges based on an extraordinary investment and adminstration service would certainly get my vote under “comply or explain” but it would have to provide a balanced picture in the way I have tried to do here.

Frankly , I can’t see such a consultation happening let alone it succeeding in maintaining high charges.

PREFERRED OUTCOME THREE; No reward without cost-sharing; – let’s get companies and employees sharing the cost and value of benefits

While I don’t see pension extravagance as being justifiable under comply or explain, I do see certain circumstances where a higher AMC is justifiable.

There are times when individuals need special attention paid to them, especially when they are having to take difficult decisions close to retirement. This is not special pleading for at retirement advisers (I’m not one), but I do see a strong argument for people who choose to have the cost of their advice paid for from their funds in the later years of their pension saving, being able to have deductions made for this purpose.

There are other areas where such costs could be paid for from commissions in the fund. Since the costs are being met by a deduction from an untaxed source-this is effect the tax-payer subsidising the cost of advice (perhaps the VATman too). For this to happen through a workplace pension , the tax-payer is granting an employee benefit. I see no reason why the DWP could not make any such tax-breaks be conditional on cost sharing between the employer and employee (for instance the employer picks up half the tab and the employee the other).

In the USA, execs get pension tax incentives on their own plan where they can show that the staff 401k is being properly used -eg the individual contributions are high.

Extending this logic, it could be argued that the comply or explain model could be extended to accommodate higher than 0.5% charges when certain member benefits are clearly included within the member charge. Companies could and should be rewarded for risk-sharing by the retention of current tax-reliefs.

But this service cannot be pre-paid by an employee by an increase in the AMC over the lifetime of the plan. Value added services should only be paid for from the fund when they are used and an annual management charge should be for annual management.

Take outs

Risk sharing starts with clarity of what the risks are and cost-sharing within risk-sharing starts with clarity on what the costs are and who shares them.
High charges have to be justified, they need to have the active consent of the members who pay them and cannot be justified by trustees who think they know best
Where there is a value argument for higher charges , it should be occasional and not spread over the lifetime of the plan. For an employee benefit to get tax-breaks, the employer needs to prove some degree of subsidy of the benefit.

Pensions for nothing and advice for free (henrytapper.com)
“Fit lean pension machines” – an uncomfortable prospect? (henrytapper.com)
No learning without doing! (henrytapper.com)
MPs demand ban on ‘damaging’ pension fees (telegraph.co.uk)
MPs demand ban on ‘damaging’ pension fees (telegraph.co.uk)
Ban on pensions middlemen whose rip-off fees wipe out retirement savings (thisismoney.co.uk)
Who speaks for workplace pensions? (henrytapper.com)
Why target date funds have been slow to catch on (henrytapper.com)
Those Dutch Pensions – a Civil Servant writes (henrytapper.com)

Posted in advice gap, auto-enrolment, dc pensions, pensions | Tagged AMC, DC Comics, pension, PQM, Standard Life, Steve Webb, Towers Watson, United States | 3 Comments

Making hard easy.

Posted on June 1, 2013 by henry tapper

That would be what I’d put on Steve Webb‘s gravestone – not that I wish the good man dead!

There is a fluency about Steve’s thinking that cuts through complexity and delivers complex ideas simply “pot follows member” “sexy cash transfers” “baked-bean pricing” – all of Steve’s catchphrases are grounded and fun – which is a refreshing change in pensions and indeed in politics.

There is a feeling that in business, such an earthy approach is inappropriate. Some would call the Pension Play Pen an un-business like name but there are plenty of business to business brands that have succeeded in the internet age because they have disrupted such notions.

Richard Branson revealed on Radio 6 last week that the original title for his record business was “slipped disk” and he had to be cajoled into calling it Virgin by his nubile PR team all of whom claimed they were.

In a complicated world, we look for simple ideas that make hard easy.

And making easy hard is the natural tendency of the insecure. Most people in pensions feel vulnerable and insecure. They are worried about losing their job/contract/client/prospect.

And as they worry, they tighten up and it all becomes harder. The sentences get longer , the words get longer, the syntax gets convoluted. Just speaking with pensions experts about pensions is a hard thing to do!

And what happens when you try make it easy,? You get mowed down by a 10 tonne dumper truck called compliance – that’s what!

Oh Lord make pensions simple – but not yet!

(Not while I’ve got years left in my career, DB pension rights still to accrue, PMI and NAPF dinners to attend!)

The mean reversion of pension talk is to a language that nobody wants to listen to. Until we set the default to “easy” , we will revert to “hard”.

If Steve Webb had a compliance officer he would never open his mouth, he would never speak unscripted and he would never talk the language of the common man. Proof positive, look at his predecessors and try to remember anything they said.

Steve Webb is not insecure, he has the courage of his convictions which were forged by years getting to understand pensions. He doesn’t always get it right and he has a habit when he’s wrong of telling people he can’t be bothered discussing it further (which is annoying) but he is always straightforward.;

Consequently we are getting pension leadership in a way we have not got it before, the hard is being made easy. We have a simplified state pension system on the way, we have an auto-enrolment system which is getting there, we have an IMA and ABI who are talking the language of the customer (glory be), we even have an NAPF which is showing a little interest in the world outside the wall-garden of its membership.

Which means we might be swinging back towards a positive view of retirement saving, for the first time in a couple of decades.

Let’s keep making the hard easy and support these positive things that are happening to pensions today.

Who speaks for workplace pensions? (henrytapper.com)
Steve Webb’s water-cooler moment (henrytapper.com)
Pot noodles member (henrytapper.com)
“Fit lean pension machines” – an uncomfortable prospect? (henrytapper.com)
“Fair and True” applies to the DWP too! (henrytapper.com)
TUC demands employers meet auto-enrolment costs (xlntelecom.co.uk)
Has Webb scotch’d the commission snake – or killed it? (henrytapper.com)
Those Dutch Pensions – a Civil Servant writes (henrytapper.com)

Posted in advice gap, auto-enrolment | Tagged Business, Employment, Financial services, NAPF, pension, Richard Branson, Steve, Steve Webb | 7 Comments

“Fair and True” applies to the DWP too!

Posted on May 31, 2013 by henry tapper

A conversation earlier this week has been gong round my head these past few days. The exact words are gone but the import was this

“the financial services industry claim everything is “free”, the public know otherwise, they know you lie when you say that”

I have already written once this week about the need for us to be clearer about the true costs of setting up company pensions (on boarding). But though these numbers are clear, are they true?

The source for this information is the Pension Regulator and the Department of Work and Pensions. The number of firms and their size rely on the small and medium size enterprise statistics; 2007. How the DWP estimated the staging budgets is not clear.

The financial services industry may have a bad name for being “fair and true” but the DWP must accept it is not covering itself in glory by stating that the cost of staging is on average £100.

If the on-boarding cost at the provider end are taken to be £60 x30 (hours) = £1800 (plus potentially non recoverable vat), I’d argue that the VAT itself will dwarf the DWP’s total estimates.

And that’s before we look at the compliance costs (initial and ongoing) on the employer side.

This is public mis-selling on a grand scale. Whether this results from a failure to understand the cost-implications of implementing auto-enrolment or whether there was a deliberate downplaying of these costs to get the bill through parliament, these numbers are wrong and wrong by a factor of at least twenty.

For all the cheery faces of the “I’m in” campaign, a dose of realism is needed from Government along the lines of

“Government apologizes for suggesting that implementing Auto-enrolment will be a breeze”

Because for every pronouncement from the providers that they need employers to act early , project plan and be AE ready, there are a bunch of key influencers in television, the national papers and the key financial websites who will argue that this is just the financial services industry scaremongering.

Embarrassing as it is to NEST, a Government agency, to whistle-blow on their bank-rollers but it is time that Tim Jones pointed out to Steve Webb and to his 1.2m portential customers that getting NEST inside your business is going to cost money and time (which are of course equivalent).

This kind of disclosure may not have been politically possible when AE was a twinkle in the DWP’s eye, but times have moved on. Steve Webb has a public policy success on his hands but if he’s to capitalise on the good news from large employers, he’s going to take a few bullets now.

Simply beating up providers (with a charging cap) and advisers (by taking away the consultancy charge) is not enough. The DWP need to be clear that the original estimates in the table above which appeared in a number of DWP documents, under-cooked the costs.

So long as those figures are out there, employers can rightly suggest to the DWP that £100 of their time is not more than a couple of hours and that’s an awful lot shorter than the time between now and staging (for most of them).

So let’s get some revised numbers from the DWP so that employers can insert them into their forecasts, providers can work in an environment where the threat of these costs reverting to their balance sheers recedes and where those advisers keen to help AE work, know there is a chance they might get paid.

Pot noodles member (henrytapper.com)
“Fit lean pension machines” – an uncomfortable prospect? (henrytapper.com)
DWP: Welfare reforms ‘improve the lives’ of poorest (itv.com)
Claimants punished for jobcentre cuts to staff and training (morningstaronline.co.uk)
Jobseekers and benefits data release postponed by DWP (guardian.co.uk)
Fraud, Error Saddle DWP With Losses Of £3.2bn Last Year (misco.co.uk)
Steve Webb’s water-cooler moment (henrytapper.com)
After Shapps’ bad data, the DWP is back in the spotlight (newstatesman.com)
Workfare placements must be made public, tribunal rules (guardian.co.uk)
Has Webb scotch’d the commission snake – or killed it? (henrytapper.com)
Pensions for nothing and advice for free (henrytapper.com)

Posted in advice gap, auto-enrolment, pensions | Tagged Department for Work and Pensions, DWP, Employment, Financial services, Government, pension, Steve Webb, Universal Credit | 7 Comments

Why target date funds have been slow to catch on

Posted on May 30, 2013 by henry tapper

One of the peculiarities of the UK pension market is that we force people to buy their own pensions. Australia and the USA just lets you draw down your pot while our European colleagues operate collective decumulation where one big pot pays pensions to many.

Our peculiarity has lead to a unique pre-retirement investment strategy called lifestyle. In truth it’s an ungly beast that is no more than a mechanism to get people out of volatile equities and into the safe harbour of cash and into Government bonds (gilts) which provide an insurance against the cost of annuities rising. While it might have been a reasonable stop-gap solution when it was introduced in the mid 90s, lifestyle was never seen as the long-term answer. something would come along and replace it.

Well that something came along , hung around a few years and is now winning some friends. That something is called the target dated fund and you can find it in your local neighbourhood master trust (NEST, BlueSky, SHPS, Pension Trust).

But you can’t find target dated funds in any insurance contract – GPP or otherwise. BGI set up a range that looked great and now seem to be stuck in the Black Rock garden shed not having caught on with the platform providers or the third party administrators.

Legal and General investment Management have invested heavily in developing the know-how to launch these funds but have not taken them to market because their is no market.

For some reason, the insurers are wedded to lifestyle as the default mechanism for their insured products and nothing’s going to change that soon…it would seem.

Well I’d like to throw some rocks at the greenhouse.

Firstly these target date funds are the consumer’s friend. It is a lot easy to chose a fund with a year attaching to it – “your best guess of the day you start getting money for your retirement”. Even if you have to change your best guess a couple of times, it’s an easy concept to grasp- ”heh, I thought it would be 2013 but maybe it’s 2016 now because my lottery numbers didn’t come in” – kind of thing.

Secondly, managing assets within a single fund is cheaper, less risky and neater than managing a bunch of funds and buying and selling units between them. TDF‘s manage things within a single fund, lifestyle is a mass of buys and sells which is a messy, expensive and risky way of doing things;. If you wanted to design a pre-retirement approach you would not chose lifestyle, you would chose TDF

Thirdly, TDFs are collective and collective schemes bring long-term economies through pooling. The one unexplored continent for asset managers is the management of post-retirement assets - collectively - as happens in Europe. It’s virtually impossible to see this happening with the individual lifestyle approach, it’s easy to see this happening with TDF (ask Alliance Bernstein).

So, with all the headwinds in the favour of TDFs and against Lifestyle it’s hard to see why insurers aren’t switching to TDFs.

To understand why, you need to understand the extremely complicated relationship between the large consultancies that own the workplace savings market for the FTSE 350 and realise that there is nothing in it for them, if asset managers control the asset management process. I know that sounds strange but investment consultants have wanted to be asset managers for as long as I can remember and they have not bought the TDF story (even though it is possible for them to manage the assets within the TDF)!

Without impulsion from the large consultancies, the big insurers will do nothing. Firms like mine can jump up and down with phrases like “force for good” , “do your duty” etc, but the vestigial drag of inertia defeats our efforts!

And to be frank, below us independent actuaries, there are few who have the time or inclination to bother. So long as the client doesn’t know the difference between lifestyle and TDF , there is nothing in it for the small firm in telling them. Even today, when TDFs are competing against lifestyle in the Master trust v GPP battle, the arguments for and against TDFs and Lifestyle rarely make it past the appendix of the client report.

With such apathy, it is not surprising that the insurers are not bothering to make the systems changes necessary to turn lifestyle off and TDF on. It is a huge ask and a huge risk to the Proposition managers already fighting fires over pot follows member, consultancy charging, on boarding and of course the spectre of 1.2m expectant employers queuing up for their auto-enrolment gruel!

This does not mean we should stop pushing. I was down at one of the big GPP providers yesterday, banging on in my usual fashion. “What’s he on” said the face of the man on the other side of the table “bet he thinks he can save the world”..

Well I can’t, I can only write about doing the right thing and hope that sooner or later, a commercial argument aligns with a moral argument and we end up with better.

Target date funds have been slow to catch on because we have poor DC governance in the UK , have had poor DC regulation (note us of past tense) and because there has been insufficient understanding of the issues among the key influencers, the press to take on the inertia created by disinterested consultancies.

Helping companies take decisions on pensions (henrytapper.com)
Ten sexy stats that drive pension firms wild! (henrytapper.com)
Those Dutch pension cuts in full! (henrytapper.com)
A democratic way to improve DC investment. (henrytapper.com)
Pensions for nothing and advice for free (henrytapper.com)
Who speaks for workplace pensions? (henrytapper.com)
The sins of the past (henrytapper.com)
Bridging that advice gap – 43rd London Pension Lunch (henrytapper.com)

Posted in actuaries, advice gap, annuity, auto-enrolment, governance, investment | Tagged BlackRock, Funds, Investing, Lifestyle, Mutual fund, SHPS, Target date fund, United States | 1 Comment

Does this fit on your smartphone?

Posted on May 29, 2013 by henry tapper

iphone6

For a really well crafted blog , it’s hard to beat this little beauty

Benedict Evans explains how in going for separate parts of the market, Apple and Samsung have carved up the global smartphone market and knocking out mighty names like Nokia and Blackberry in a few short years.

Which leaves us with a very simple choice; chavvy Samsung, aspirant I-phone. I-phone makes lots of profit and Galaxy grabs lots of market share.

All very interesting for the techno-nut but what does this mean for workplace pensions (such an obvious question)?

It means ladies and gentlemen that we shouldn’t have a lot to worry about. People will , for the foreseeable future, want to see information either on a Microsoft or Apple system delivered on a reasonably small or slightly bigger screen. Two operating systems going head to head -sounds familiar? – so there’s a little duplication but hardly “version proliferation”.

You’d have thought that pension communicators would have two things on their minds - getting their stuff onto iPhones and getting their stuff onto Galaxies.

This does not appear to be the case

Despite the fact that nobody gets papers out of briefcases, the pensions industry continues to regard the A4 page as the ideal medium for transmitting its message. Sod the fact that our customers have no interest in what flops through the letterbox unless the bill’s gone red, we will continue to send out statements and information packs and advertisements by surface mail as if it was still 2003.

L&G and other mass market pension providers are now reporting that despite the absence of ”pension apps”, insistent smartphoners (eg most people but especially the young) are opting in and out and transacting WITH THEIR THUMBS!

If it does not fit on an iPhone or galaxy screen it isn’t worth a f*#k. That is the simple message to the communicators of our accumulating pension wealth.

I say this with a chuckle , because I type on a chunky old lap-top. I’m old and have poor eyes and really can’t manage those small keys. That’s my excuse and I’m sticking to it.

So what’s yours?

Galaxy 4

Samsung tops Apple in smartphone revenue for Q1 (phonearena.com)
Apple Ruling in Patent Case Against Samsung to Get Review – Bloomberg (bloomberg.com)
Is a Samsung Galaxy S4 Mini smartphone on the way? – Christian Science Monitor (csmonitor.com)
Samsung steals smartphone revenue crown from Apple (bgr.com)
Samsung ranks first for smartphones sales in Q1 2013, but Apple leads on profit: Strategy Analytics (thenextweb.com)
The Smartphone You Have Been Looking For (insurancefiles.com)
When Comparing Apple to Samsung Is Misleading (fool.com)
New Samsung Galaxy and Ativ devices to counter WWDC 2013 (product-reviews.net)
Market Share and Profit Dynamics – Is Android REALLY Winning? (geardiary.com)

Posted in auto-enrolment, pensions, social media | Tagged Android, Apple, Blackberry, Galaxies, IPhone, Nokia, Samsung, Smartphone | 1 Comment

Ten sexy stats that drive pension firms wild!

Posted on May 27, 2013 by henry tapper

It’s not easy to write a sensational headline about the underwriting of workplace pensions. The best google images could give me for “sexy pension stats” tops this post.

I’m sorry to be so brazen with the news that only 16.6% of Chinese people in 2011 thought that Retirement Pension for the Elderly was the country’s biggest problem- but I had to catch your attention somehow! – especially if you’re a boss of one of the million or so employers who will need to get a staff pension in the next five years.

In the eyes of the DWP all companies are equal but to the insurance companies some are more equal than others and to make sure you get “favoured pension” stages, it’s well to put your best foot forward. Which means knowing what turns on pension providers and what kills passion like a wet night out in Wigan.

So here’s the list y’all been waiting for – Taps’ top ten underwriting criteria for workplace pensions

Workforce size matters – the smaller your workforce, the harder to attract a provider’s attention. Insurers want to know the number of staff eligible for a workplace pension.
Total contributions add up; - insurers think over time and they see your monthly pension cash flows for what they’re worth today but in 2013 ,2023 and 2033.
Contributions per member is a key metric, each member is a “unit cost” the higher the conts per member , the lower the impact of your unit cost
Member Contribution structure; insurers look for the potential for members to make voluntary contributions, a low minimum member contribution means more scope for growth.
Corporate Contribution Structure; this is where you can show off your saviness; if you are phasing contributions, using salary sacrifice, and incentivizing member contributions by sharing NI savings or even matching contributions – tell the insurer.
Staff turnover; small pots need servicing and have their own unit cost. Sub 10% staff turnover and you’re a pension fleshpot, above 20% and you’re a wallflower. The proposed pot-follows member will increase the importance of this underwriting criteria.
Seed capital; nothing gets an insurer gong like the prospect of short term revenues, if you’ve got capital that is available for transfer , look for some salivation.
Percentage of workforce online; think “Digitability” ; (ok that’s my word) but some workforces lend themselves to digital communications and some don’t. Insurer’s look for those that do. The percentage of staff with company e-mail addresses is a key stat.
Self-service culture; promote your self-reliance, minimise the prospect of manual processing and demonstrate “self-service and straight through processing”. If you operate flex and want to promote workplace ISAs under a corporate wrap, say so!
Full disclosure; No nasty surprises; if you know there’s a problem flag it;disclose and be trusted, This is typically an issue for auto-enrolment – share your workforce assessment

We anticipate that in the months and years to come, more and more companies will be forced to go direct to the market to get terms for their pensions.

Those who can’t be bothered to engage will have NEST , other mastertrusts and at least one insurer who will offer blanket terms (eg – they’ll disregard all of the above).

But if you think your workforce special, you’ll want to get a whole of market quote. You wouldn’t insure your business assets or your liabilities any other way.

There will probably be some pension providers who will turn you down; Zurich, BlackRock and Fidelity are, at present, quite open about not wanting quotes from companies with less than 500 employees and a strong employer covenant (eg a high contribution per member and an attractive workforce).

But there are a large number of insurers, Aviva, Standard Life, Scottish Widows, Scottish Life, Friends Life and Aegon who historically relied on IFAs to provide them with these sexy stats. Many of these IFAs are no longer interested in this work, that’s an unexpected consequence of the RDR and it’s compounded by the banning of consultancy charging (Commision v 2.0).

Those companies who learn the ropes and get savvy with the providers will find their way to the front of the queue. The graph below shows just how long that queue could be. Demand for these workplace pensions is going to be “spikey”!

If your staging date is on one of those spikes, then the chances are you’ll be experiencing both a “capacity crunch” and an “advice crunch”.

The stark message is that you will probably be on your own! So the sooner you get your firm pension savvy and “ready to buy” – the better!

Do consumers benefit from risk-based pricing? (henrytapper.com)
No learning without doing! (henrytapper.com)
Replacing the financial salesman in the workplace. (henrytapper.com)
Can social media play a part in pension scheme governance? (henrytapper.com)
“Fit lean pension machines” – an uncomfortable prospect? (henrytapper.com)
Who speaks for workplace pensions? (henrytapper.com)
Comprehensive Life Insurance Analysis (creditloan.com)
A democratic way to improve DC investment. (henrytapper.com)
Pot noodles member (henrytapper.com)
Ban on pensions middlemen whose rip-off fees wipe out retirement savings (thisismoney.co.uk)
Pension boost for low-paid workers (thesun.co.uk)

Posted in advice gap, auto-enrolment, dc pensions, happiness, pensions | Tagged Aviva, BlackRock, Friends Life, Insurance, pension, Scottish Widows, Standard Life, UK State Pension | 6 Comments

The true and fair way to “cost” your investments

Posted on May 23, 2013 by henry tapper

Alan and Gina Miller are good people. They have invested their money, experience and time to develop a website that allows you to work out what you are really paying for your investments- whatever the wrapper you put them in.

Here’s the web-address www.trueandfaircalculator.com

It’s free to consumers (the fund managers will eventually pay to be listed) and it works. You need to know a little about what you invest in to be sure you are keying in the right fund and you need to understand the mechanics of the platforms to use the advanced section but even I can work things through the Standard approach without any practice!

What it shows is what we’ve been finding out through work published by the FSA (as long ago as the early noughties) and subsequently by Which, Terry Smith‘s Fundsmith organisation and Norma Cohen of the FT.

In a low inflation/low growth world, we can pay as much to have our money managed as we can reasonably expect in growth on our money.

While in nominal (eg pounds shillings and pence) terms, the cost of investment doesn’t increase, the impact of charges in terms of the reduction in “real”growth has increased as real returns have fallen (matters could be even worse if inflation hadn’t been artificially depressed by quantitative easing).

Looking through the assumptions that sit behind the machine, I am quite surprised at how generous Alan and Gina have been to the fund managers. The estimates of the “spreads” that managers pay when buying and selling investments within the funds are much lower than other research has suggested (or in some cases the managers admit to). These guys may actually be under-cooking their own arguments – a pleasant change from normal practice!

“True and Fair” get their data from Morningstar and builds on work pioneered by the Securities and Investment Committee in the USA. I have to say, their site is rather more user-friendly than the American versions – especially as you don’t have to trespass on a lot of Government property to get to it!

Best of all, the machine allows you to make comparisons between your funds and similar funds that do the same job. I was speaking with a lady yesterday whose company has a DC scheme whose default fund is priced at five times the cost of my default fund. We agreed that her fund probably did more but I’ll be sending her the link this morning to show her the impact over five, ten , fifteen and twenty years of the extra cost her staff are auto-enrolling into.

This is the big point here. You would not go into a shoe shop and buy the prettiest shoes in the window without reference to price. You would weigh up the “opportunity cost“, those Jimmy Choo look great but could you ever afford to show them off at an expensive event?

The benefit to the consumer is obvious; the benefit to the investment management industry is not so obvious, but it’s there all the same. This machine will increase competition, drive out inefficiencies, increase respect for managers (with an eye to costs )and encourage those with the wealth to save to serve themselves.

Let’s hope that organisations who run funds platforms - Hargreaves, Fidelity and the like, grab this model with both hands. I am in a state of “tremor-cordens” at the prospect of housing this engine in the “costs and charges” section of www.pensionplaypen.com and I will be thoroughly recommending it to all visitors to our new site as I do to you!

Alan and Gina Miller- good people

Posted in auto-enrolment, brand, Change, dc pensions, Financial Education, First Actuarial, hargreaves lansdowne, hedge funds, pensions | Tagged Asset management, DC Comics, Funds, Investing, Investment, Mutual fund, Terry Smith, United States | Leave a comment

A democratic way to improve DC investment.

Posted on May 22, 2013 by henry tapper

Little noticed last week , Legal and General opened the door to shed light on the decision making around the DC default it operates not just for its master trust, but its contract based and legacy DC plans as well .

This matters; L&G have auto-enrolled over 260,000 people since October of last year (in the same period NEST enrolled around 100,00. L&G are managing the greater part of the wealth so far generated by the new system.

I’ll quote from their press release a fuller version of the story is available here .

Legal and General (L&G) will introduce a “trustee-style” governance committee for its contract provision, the company has announced.

The Independent Governance Oversight committee (IGO) is intended to bridge the perceived gap between governance in trust-based arrangements and contract schemes, L&G Trustees chairman Paul Trickett said.

Trickett, who recently joined L&G master trust’s governance board, will also chair the IGO, alongside three L&G executives and PTL director Steve Carrodus as an independent representative.

The committee’s primary focus will be ensuring the quality of defaults is maintained, or improved where necessary, in contract arrangements.

Where there are existing employer governance boards the IGO will work alongside them, but it will take sole responsibility for governance where no oversight currently exists, Trickett said.

The IGO will be supported by sub committees and the independent investment advisor, as well as additional support from in-house investment committees.

He said: “We will utilise the support infrastructure embedded for the master trust so that our approach is consistent across the DC spectrum.”

L&G managing director of workplace savings Tony Filbin said the new approach will introduce a level of “independence” not currently seen in contract governance.

All L&G contract schemes will receive the new governance function, including legacy schemes, but the charges will not be passed to members, Filbin said.

He added: “Although there is a cost for providing this service, the benefits of scale we’re currently seeing means that the base unit cost will go down.”

What good will this do? Well Steve Carrodus is my man. I will soon be investing almost all my pension savings in the L&G default and I for one am going to make sure this man Carrodus knows my views!

If he and his firm think they can just sleep through a couple of meetings a year and nod acquiescently, he has another think coming. (Actually I know this guy and he’s a good bloke- his firm a Force for good).

It is no good us reading about these things in the pension press and doing nothing. If L&G are serious – and I know they are - about improving governance, democratizing the process needs to go further. The views of the millions who invest through them .whether in live or legacy schemes need to filter through.

This is already happening. On the pension play pen linked in group, there is a discussion about the differences in governance between trust based and contract based pensions. In my view the difference should be wafer-thin. L&G have demonstrated that there can be equal opportunity for us to influence the debate on both sides of the argument.

This is what I wrote on the thread this morning

One of the things that works about DB trusteeship is that there’s something in it for Trustees- eg the prospect of a good pension for themselves (and most trustees would lose if the scheme went into the PPF).

Frankly , no such incentive exists among DC fiduciaries. Until L&G announced they were appointing an external trustee to its contract based board of control last week, I could not name (for sure) one individual who was accountable for decision making on defaults within insurers (and I’m supposed to know).

Insurers are frankly appalling at publishing the deliberations behind their decision making on investments which are not even shared with advisers- let alone made public generally.

Consequently there is little capability for the public to question, lobby or materially influence. With the exception of Fair Pensions, I don’t know of any consumer lobby group actively lobbying for better defaults.

This seems to be a roll for people who care about pension outcomes. Perhaps I should take this further.

I complained last week about the ineffectiveness of investment committees set up by companies to get PQM accreditation. Part of my frustration is that these committees have no influence with the providers of contract based providers.

Insurers like L&G has got to reach out to these committees and these committees have got to talk to L&G. Steve Carrodus - you and Paul Trickett and everyone else on the L&G master-trustee board and the IGO , have got to work with Tony Filbin and make sure that you are working together towards better defaults.

L & G have done a great thing. Adrian Boulding, who is another L&G man involved in all this (he also sits on the NAPF PQM advisory group) is also up to great things.

There is a door opening here and we should stick our feet in lest it close again on us. The responsibility for improving DC governance falls on all of us who care about making pensions better so come along and together we can make things better.

Can social media play a part in pension scheme governance? (henrytapper.com)
Who speaks for workplace pensions? (henrytapper.com)
Improving governance and best practice – Work and Pensions Committee (henrytapper.com)
Those Dutch Pensions – a Civil Servant writes (henrytapper.com)
No learning without doing! (henrytapper.com)
Do consumers benefit from risk-based pricing? (henrytapper.com)
A method to chose your workplace pension scheme. (henrytapper.com)
Bridging that advice gap – 43rd London Pension Lunch (henrytapper.com)
Club Quango at #WPL13 (henrytapper.com)

Posted in advice gap, pension playpen, pensions, Popcorn Pensions | Tagged DC Comics, Employment, Investment, Legal & General, National Employment Savings Trust, pension, Pension Protection Fund, trustee | 5 Comments

“Fit lean pension machines” – an uncomfortable prospect?

Posted on May 21, 2013 by henry tapper

Now that life companies have digested the shock to their distribution systems of the ban on consultancy charging, they’ll be asking

“what’s that coming over the hill…?”

“Is it a monster?”.

Because the Life companies were here before in the late nineties.

Steve Webb knew what he was doing, announcing in May a deferred consultation on a charging cap. It puts planning blight on the sale of high-charged products and gives the DWP time to do a deal.

Nevertheless, the announcement is a clear a marker that for schemes to “qualify” as workplace pensions from 2014 onwards, they need to be fit, lean pension machines.

He’s got three reasons to drive excess puppyfat out of the market

He knows the OFT are coming; the OFT are the Visigoths of Governmental quangos, they take no prisoners and noises off suggest they are finding UK pension providers about as flabby as a 5th cent Roman debauchee. (Aye Claudius).
He needs a level playing field for “pot-follows member” which cannot allow pots to march up the charges hill. For public confidence in workplace pensions to be restored, we need a low dispersion of charges with a very small tail of schemes with charges above a baseline level.
On a purely political level , he needs to head off the Pictish predator Gregg McClymont, who has publicly stated that unless the ABI and IMA get their acts together and out hidden costs, he’ll wave his tabard in their general direction come the revolution sorry next election.

That’s three good reasons to ignore the “special pleading” of the life companies. I’d be cynical to suggest that Webb is driven purely by expediency. He is clearly a conviction politician who knows what makes for good. Let’s hope that any other kind of conviction can be avoided.

But back to the deal..

“A fit lean pension machine” is one thing. But if life company CEO’s smell the whiff of a smouldering Bob Diamond in the air, they may well decide enough is enough. There are pastures greener in the Middle and Far East where charges and margins remain high. Why transact where the earth is scorched when shareholder value is around elsewhere. It’s not as if our great British Lifecos are run by Brits, the new CEO of Aviva is a Kiwi (for example).

So here’s Webb’s challenge. Fail to nail charges and you get flailed by the OFT, screw pot-follows-member, and give ammunition to the Labour Party; overdo the charges cap and you find yourself with a gap in the market signed “insurers woz ere”.

Judging the appetite of the flakier insurers to play on a pitch already tilted by Solvency II is tough. With the mastertrusts enjoying a Solvency II free ride and carrying no overweight from the legacy, many insurers are already struggling to win new business. It is hardly surprising that the ABI are getting agitato.

It is not in the long-term interest of our workplace pensions to lose major providers. At the very least we need them to pay attention to their existing books of good business. We need them too to down-charge the schemes which pay commission to absentee advisers , to take out inappropriate “active member discounts” and to offer upgrades from legacy products that will not limbo into qualification..

So look out for the odd olive-branch waved over the summer from Caxton House. If the ABI are doing their job, they will be feeding the DWP ideas that provide compromises that “future-proofs” Webb and themselves.

Likewise, the ABI have to be careful how they position this with the DWP and the country.

The insurers made it plain during the Boulding consultation of 2010, they did not want to play at the back end of auto-enrolment . Since then , many of them have built the apparatus to do just that. Was the 2010 position pure posturing and will the whingeing that will accompany the “fit lean pension machine” charge cap of 2014 be any different?

The spectre of the charges cap is creating a phoney war over the summer and if you are still with me after this melange of mixed metaphors, you can see why I predict six months of “planning blight”.

The strategies of course remain the same “STICK OR TWIST”. We move into day two of auto-enrolment with all to play for on a pitch increasingly likely to take spin.

So what’s new in pension reform? (henrytapper.com)
Who speaks for workplace pensions? (henrytapper.com)
Those Dutch Pensions – a Civil Servant writes (henrytapper.com)
Everybody need standards (henrytapper.com)
Can social media play a part in pension scheme governance? (henrytapper.com)
Has Webb scotch’d the commission snake – or killed it? (henrytapper.com)
No learning without doing! (henrytapper.com)
Pension pots ‘saved from charges’ (bbc.co.uk)
Club Quango at #WPL13 (henrytapper.com)
Steve Webb’s water-cooler moment (henrytapper.com)

Posted in advice gap, auto-enrolment, Bankers, dc pensions, EU Solvency II, pensions | Tagged Aviva, Bob Diamond, Far East, Gregg McClymont, Labour, OFT, pension, Steve Webb | 12 Comments

The Regulator’s brilliant auto-enrolment website.

Posted on May 19, 2013 by henry tapper

We were sitting last Thursday in the Stonemason’s arms. By “we” I mean the Pension Playpen’s content management team.

Most of our number don’t know about pensions - in fact the only person who knows about pensions is our Hannah (Clarke) who knows everything (though she’s no “know all”).

Martin , who is a small businessman, turned to us and with a look of mild surmise intoned

If I go to a pensions website, I want to know what to do about this auto-enrolment thing. Where should I go to find out what I have to do?

Eyebrows were raised, www.pensionplaypen.com is designed to help small businesses like the ones Martin runs, make easy going of auto-enrolment.

Just go to the Pension Regulator’s website

Said Hannah. So we did , and what we found was so good that I have spent the past 24 hours re-reading all the documents that I read when they first came out and have now forgotten.

The Pension Regulator has really got its shit together and has produced an auto-enrolment website that is beautifully constructed with excellent navigation. It contains all you need to know whether you are a beginner,intermediate or expert. The information is delivered to a consistent standard of excellence.

There is nothing sexy about the site but it is packed with useful tools that can help your company with understanding the when,what and how of employer obligations , provides a project planner to help companies be ready for their “staging day” and gives practical tips on how to communicate what is going on to the employees affected.

The site is not going to win awards, because it is not flashy and there’s no commercial reason for those outside of Government to promote it.

Well I take that back, because here am I, a commercial guy – promoting this website; not because I want to , but because I have to - it’s better than anything I’ve seen in the private sector, including the auto-enrolment section of the sites I’m involved with at First Actuarial and Pension PlayPen.

Which calls to mind a question I’ve been meaning to ask the Pension Regulator, if I can’t beat you, can I join you. Can I make this wonderful educational resource part of my offering?

As a tax-payer I’ve paid for a little bit of it and if I can host your information on my site , I make sure my visitors get it straight from (my) horse’s mouth.

People throw sticks at Government for making auto-enrolment too complicated; then they complain when the Government try to simplify the complexity, but no-one takes the trouble to congratulate Government when it gets it right.

The Pension Regulator has been getting its digital policy right for a couple of years, it gets social media, runs a great linked in group, does twitter well and is always relevent. It is an example to other Government functions on how to engage with its audience.

So , before I nip down the road to Wembley to see my beloved Yeovil Town bid for play-off glory, I’ll urge you , should you have an interest in pensions, to spend some time checking it out for yourself ; it’s here or if you like a URL ,press this http://www.thepensionsregulator.gov.uk/employers.aspx

Everybody need standards (henrytapper.com)
So what’s new in pension reform? (henrytapper.com)
Who speaks for workplace pensions? (henrytapper.com)
Get up! Stand up! For your pension rights! (henrytapper.com)
The sins of the past (henrytapper.com)
“Cynicism’s” trending on #pensions (henrytapper.com)
Auto-enrolment 308,000 onto pensions opt out not revealed (thisismoney.co.uk)
A momentous day for restoring confidence in UK pensions (henrytapper.com)
Bridging that advice gap – 43rd London Pension Lunch (henrytapper.com)
“This House” is a pension playpen (henrytapper.com)
Cap on pension fund fees to help savers (telegraph.co.uk)

Posted in auto-enrolment, First Actuarial, pension playpen, pensions | Tagged Actuarial science, Education, Employment, first actuarial, Government, pension, pension playpen, Pension Regulator | 3 Comments

Come on Yeovil!

Posted on May 18, 2013 by henry tapper

What’s the first thing I see when I wake up in the morning?

Brentford Town’s football ground – that’s what!

If I strain my eyes North Westward, I can see the white arch of Wembley across the horizon.

On Sunday, 25,000 Brentford fans will make their way round the north circular and down Wembley Way, with them will be a couple of lads in green and white.

I slept in my Yeovil Town away kit last night and will wear my home kit today as I go about my business in Brentford High Street.

My father grew up here, my grandfather was Methodist Minister for the Hounslow and Brentford practice.

Sheffield United logo (Photo credit: Wikipedia)

When I was a kid I supported Bournemouth, who pipped Brentford and Yeovil for automatic promotion. But a few years ago, Doncaster, the other promoted team from League One stole Bournemouth’s manager and most of its first team from Bournemouth.

A.F.C. Bournemouth (Photo credit: Wikipedia)

Yeovil have never stolen players, we have never had the money. Our best player and the league’s top-scorer, Paddy Madden, arrived at the club mid-season on a free transfer.

Yeovil got to the final by beating Sheffield United over two legs. Sheffield United brought less fans to Huish Park on a sunny bank holiday Monday than Yeovil took to Sheffield for the first leg on a cold Friday night. Yeovil’s average home crowd is around 4,000 , about a quarter of #SUFC’s.

Yeovil Town is the best thing going for Yeovil which has one of the highest levels of youth unemployment in the country. Our fans are impeccably behaved, we regularly win awards for our behaviour and Huish Park must be one of the safest grounds in the world. The relationship between the crowd, manager and players is close and while we do our fair share of moaning about the owners of the club, we are solvent and can afford to lose on Sunday.

8 minutes into the game, our fans will chant for 60 full seconds “there’s only one Adam Stansfield” in memory of our former player who died young and will not be forgotten.

Our motto is “Achieve by Unity” and it’s awesome how we have.

When Yeovil Town run out on the Wembley turf to fight for a place in the Championship, we will not be thinking about the £6m odd in extra TV revenues , or keeping Madden and Stech or dreaming of the Premiership. Our fans will be thinking about the lads and King Gary Johnson and glory for the Glovers.

We’ve come close before , this time we’re going all the way!

Football in Yeovil is played for the right reasons, for football reasons. As our club song goes we’ll be Yeovil True whether we’re up or down. But blimey, it would be great to get to the Championship for the first time in our club’s history!

Anyone who believes in community football should support us, Brentford is a great club, most seasons I look out for them, but not this system. If at 4pm on Sunday afternoon they have beaten us , I’ll share a drink with the Bees but let’s hope we’ll be spending Sunday night up town as the happiest of Brentford Glovers!

Up the football leagues we go! Come on #ytfc! (henrytapper.com)
We are top of the league , we are top of the league! (henrytapper.com)
We are the Yeovil! (henrytapper.com)
We are Yeovil! (henrytapper.com)
Yeovil Town 2-0 Sheffield United (Yeovil win 2-1 on agg) | League One play-off (guardian.co.uk)
nPower Football League 1 Playoff Preview (tradersixtyfour.wordpress.com)
Yeovil v Sheffield Utd (oddonion.com)
Yeovil Town are preparing to face Brentford in the play-off final (dailymail.co.uk)
League One Wrap: Brentford to meet Yeovil in play-off final (soccerway.com)
Sheffield Utd v Yeovil (bbc.co.uk)

Posted in football, pensions, Yeovil Town | 2 Comments

Replacing the financial salesman in the workplace.

Posted on May 17, 2013 by henry tapper

“Pension Providers have for long relied on IFAs to “onboard” and manage workplace pensions. They won’t for much longer, they will need to automate the on boarding and management processes or close to new business ”. – The Pension Plowman ; May 2013

To understand this statement , let’s go back a few years.

In the nascent days of the GPP, the eighties, there were clear distinctions, IFAs dealt with people and insurers and consultants dealt with companies. The Group Personal Pension, that emerged as an entity shortly after A-day in 1987, was a hybrid product that allowed released employers from the burdensome business of having to run a pension for their staff.

The GPP was originally an outsourced occupational pension , where the management of a trust board was dispensed in favour of an individual advisory approach. The adviser was a surrogate pension manager responsible for implementing the scheme, inducting new members and maintaining a relationship with leavers . I couldn’t build up a portfolio of GPPS so labour consuming was each employer relationship.

Over time, we have seen a commoditization of support for employers with GPPs to the point that some advisers , especially those like my firm who do not take compliance responsibility for the members, can help a company set up a GPP but never see a member.

Nevertheless, the vast majority of GPPs are still the adviser’s babies. Since they have no trustees and rarely any pension professionals on the payroll, most companies with GPPs rely on the IFA to install them, help them manage in new joiners , provide sessions to explain the arrangement to those staff in the scheme and some support to those leaving, especially those retiring.

It is this relationship which the abolition to consultancy charges and the threat to commission radically changes.

The presence of an IFA on site becomes a “given”. “you’ll be getting a visit from Henry our financial man” was part of the induction letter that went out to staff at one of the companies I used to look after. Nobody quite knew who I worked for, but from the way I swaggered around the shop floor in my suit, I suspect most of my customers thought I was part of the management. I don’t ever remember being asked who paid me, I was just something that came with the job – like the induction letter said.

In fact I was being paid for out of their pension pot, and in many cases, I still am. Even though the company I’m thinking of wound up many years ago, the majority of people I saw were no older than myself and will still be working, waiting to draw a pension which may have up to 4.5% pa taken from it to recover commission paid to me in those years. I would be surprised there has been much growth in their posts in the past ten years.

This is the fundamental deceit of old school pensions.What seemed “free” and seemed “easy” was not free to the member or easy to the adviser.

For all my swagger, I did not become rich from my efforts.

I was a financial salesman dressed up as a financial adviser. I was paid to maximise the contribution from each employee. But the employees were in no position to save, lapse ratios were appalling as was staff turnover. Most of my work was counter-productive.

Had I understood market segmentation, I would never have bothered explaining complex financial matters to people with no interest or aptitude for my arguments. Nor would they have countenanced calling me over to discuss the time of day , if they knew the damage my relationship would be doing to their pension pots today.

If I paint a grim picture with no winners, I have only half filled the canvas. For there were winners from all this. “Upstream” were the broker consultants, the sales managers , the product managers , the underwriters, the fund managers and the Directors of the insurance companies who received the money. They would keep me happy with lunches and the odd ticket to a football game and in return I and my client would pay their wages and keep them all in company cars.

It is a grim truth but it was never those at the foot of the pyramid who benefited. Money flows up the pyramid in financial services “contra natura”.

But now the pyramid is being dismantled. The Advisers are leaving the workplace, their pay and rations have been terminated. To their general dismay, the buck that was passed to advisers in the late 80′s has now returned to the insurer and the employer.

The memories of the 12 years I spent in my twenties and early thirties as a commission only adviser are vivid. I was poor and so were my clients and what money I made my clients the poorer still. I cannot think of many of them without a mixture of affection and personal guilt.

I know most of the big-wigs in the providers today, many of them were in the pyramid above me then. They never advised clients directly nor experienced the horror of a negative cheque at the end of a month (when commission clawback exceeded money earned). For them, the gravy train has hit the buffers and they have gravy down their shirts, but they still have their cars and their occupational pensions and job security.

All most of the people I advised have got to look forward to is the shriveled stump of a savings pot devoid of growth.

So if you hear stories from providers of the “advice gap” be aware. The system that has been in place these past 25 years has served few well, it has brought pensions into disrepute among a substantial proportion of the population, it has created a sub-group of bitter ex-advisers who feel guilty and let-down and it has created among employers a suspicion of pension people as pariahs who prey upon their workforce.

This is the legacy of 25 years of commission-based GPPs and it is why I am glad to see the back of commission and consultancy charging. The financial salesman is well out of the workplace but will he be replaced?

To stay in the game, the insurers who relied on commission based IFAs are going to have to spend money creating a replacement infrastructure to “onboard” new schemes and auto-enrol new entrants. They’ll have to provide the day to day support to their policyholders and ensure they get proper help when they want to draw on their pension savings.

This is a major undertaking and I fear there will not be an appetite among some providers to take on this new challenge. I sincerely hope this does not happen. There is not just an advice gap, there is a gap in good quality workplace pension provision for the 1.2m employers yet to stage auto-enrolment.

There are, since the RDR, hundreds, maybe thousands of corporate financial advisers either unemployed or trying to enter new professions. We can no longer afford them, they have been made redundant by regulation which assumes they can be replaced by technology. The old role of adviser as on-site salesman has disappeared

Auto-enrolment killed this kind of adviser as video killed the radio star.

But technology cannot replace lawyers and accountants and nor can it replace the need for financial advice among those most vulnerable, those approaching and at retirement. They have wealth to be managed and the decisions they take will impact the rest of a lifetime.

The providers who have built relationships with these advisers would be well advised to think of redeploying their skills in helping the pots that have been built up in personal pensions decumulate to the advantage of the pensioner.

The very best advisers will be able to make this transition themselves, most already have. It is the insurers that took a bet that the pyramid would remain intact post RDR, who have most to do. The few advisory firms who took a bet that members could continue to be charged for the on-site salesman.

The transition which must happen over the next six months as we prepare for 2014 and onwards will be expensive and traumatic, let’s hope it does not drive the remaining good advisers out of the market, let’s hope we see no more insurers close their doors to new business.

Who speaks for workplace pensions? (henrytapper.com)
Do consumers benefit from risk-based pricing? (henrytapper.com)
Get up! Stand up! For your pension rights! (henrytapper.com)
A momentous day for restoring confidence in UK pensions (henrytapper.com)
Can social media play a part in pension scheme governance? (henrytapper.com)
Everybody need standards (henrytapper.com)
Has Webb scotch’d the commission snake – or killed it? (henrytapper.com)
Pensions; holy grail or wholly fail? (henrytapper.com)
So what’s new in pension reform? (henrytapper.com)
No learning without doing! (henrytapper.com)

Posted in advice gap, annuity, auto-enrolment, Payroll, pensions | Tagged Consultant, Employment, finance, Financial adviser, Financial services, GPP, Insurance, pension | 12 Comments

Who speaks for workplace pensions?

Posted on May 16, 2013 by henry tapper

TPNW breakfast a great success

The Pensions Network held an excellent breakfast meeting this morning that included a grumpy Steve Webb (late night in the house?) and a variety of great speakers giving us an elevator pitch on what makes for good.

Apart from the usual sparring between NEST and L&G this was a pretty sedate affair with a lot of nodding heads at statements of the bleeding obvious, mixed up with some insiteful stuff from Tim Jones, Adrian Boulding, Yvonne Braun, Alan Higham Chris Curry (the new PPI supremo) and especially Doug Taylor of Which.

One thing that is becoming clear to me is that whoever is speaking for the companies sponsoring workplace pensions, it is not going to be the NAPF- not unless they significantly raise their game.

The NAPF are putting a lot of store by their Pension Quality Mark which they hope to become the recognised quality for workplace pensions. To date they have 175 companies signed up (and there are sign-up fees). You can read about it here

If the NAPF want to provide a nationwide pension benchmark, they need to start speaking to and for all the employers of Britain , not just the pension intelligentsia.

Pension Quality Mark is not getting traction beyond its core membership

A few weeks ago, I invited the NAPF to work with my site www.pensionplaypen.com to promote better standards of governance and higher levels of contribution to the 1.2 million employers that are not members of the NAPF, don’t have a meaningful workplace pension and have no idea what PQM is.

Since then I have heard nothing.

The NAPF needs to collaborate for the common good

I don’t speak for workplace pensions any more than the NAPF do, but I’m prepared to stand my own money on a website and on services that set out to restore some faith in public pensions. It greatly saddens me that the trade body that I subscribe to is uncomfortable to enter into a simple agreement that can give PQM a free ride.

The NAPF, unlike the ABI and the IMA who are moving forward, seems to be determined to spend its time in battle with other trade bodies. It calls for tPR and FCA to work as one, yet it cannot work towards the common good within its sisterhood. The NAPF’s failure to promote the ABI’s code of conduct on annuities to trust based occupational DC schemes is incomprehensible and inexcusable.

Tom Mcphail tells me that they are beginning to come to the table so “better late than never”. The fact remains that the NAPF are following not leading on DC issues – whether at employer or consumer level. This goes for the PQM too.

The NAPF needs to make PQM a user-friendly kitemark that isn’t a barrier to entry.

Everything that we have seen about auto-enrolment so far draws us to one conclusion.

Auto-enrolment works because it makes things easy for people.

The only people auto-enrolment hasn’t been easy for so far has been the early staging employers who have had to work with unsimplified regulations and pioneer many of the processes and practices that will be normalised for those staging in future.

The NAPF’s solution for the 1.2m employers many of whom are as green to pensions as the employees they will be enrolling is to put up three road blocks. To get along the road the other side of PQM, you need to contribute substantially more than the minimum auto-enrolment scales. And you need to set up a governance structure within your organisation. Thirdly you need to pay an initial and annual fee to the NAPF to be credited.

This is not called making workplace pensions easy.

I question whether setting a governance committee up at employer level is either feasible or productive. I know it will be a greater burden on smaller companies than larger ones.

I also question whether the NAPF have any business interfering in the reward strategy of employers. Determining minimum standards on a qualifying workplace pension scheme is one thing, but deciding on a minimum contribution for a “trying” employer well in excess of AE tiers is another.

I don’t question the value of accreditation but I think you pay for something that gets peer group appreciation and unless the PQM becomes relevent to the “pensions uninitiated”, it will not get their money.

For PQM to appeal it must have mass appeal. It would be better to focus on the efficiency of the scheme and in particular on DC outcomes than on the financial and human resource that a company should be throwing at the scheme.

So howabout PQM lite- something that smaller employers can aspire to?

Companies can do much to improve the pensions their staff get without a large expense of money. They can negotiate the best charges for staff, investigate and ensure they get a good default investment option , make contributions more efficient through the use of salary sacrifice and provide staff with real help at retirement by making a good annuity broker available to staff. These things improve outcomes without limiting the company’s ability to pay good wages and invest for the future.

The NAPF has no real understanding of SME and micro employers, they have always pitched to the big schemes run by large employers . In three years they have picked up 175 customers for PQM, a lot of them big schemes.

Some of those schemes have been introduced by my company, the PQM works for members of the NAPF.

But PQM is failing to become a household name. PQM is not a national standard and the NAPF does not speak for the 1.2 million employers that are not their members.

If the NAPF wants to become a relevant trade body beyond the narrow coterie of its existing membership, it will need to start listening to people like me and working with organisations that are set up with the small employer in mind.

The NAPF must democratise itself if it is to continue to speak for pensions

Somebody needs to speak for workplace pensions, it should be the National Assoication of Pension Funds and it is frustrating that while the ABI and IMA are prepared to listen and co-operate, the NAPF remains obdurately aloof.

Can social media play a part in pension scheme governance? (henrytapper.com)
Everybody need standards (henrytapper.com)
Government outlines new plan for pensions pots (standard.co.uk)
Has Webb scotch’d the commission snake – or killed it? (henrytapper.com)
Do consumers benefit from risk-based pricing? (henrytapper.com)
A method to chose your workplace pension scheme. (henrytapper.com)
Steve Webb’s water-cooler moment (henrytapper.com)
Bridging that advice gap – 43rd London Pension Lunch (henrytapper.com)
The sins of the past (henrytapper.com)
No learning without doing! (henrytapper.com)

Posted in auto-enrolment, napf, NEST, pensions | Tagged Employment, FCA, NAPF, National Employment Savings Trust, pension, PQM, Steve Webb, www.pensionplaypen.com | 15 Comments

Do consumers benefit from risk-based pricing?

Posted on May 15, 2013 by henry tapper

The question arose during a talk by John Raven of Oxera and whacked me right between the eyes. This is a big question in the development of workplace pensions. I was at a conference on annuity but I was thinking workplace pensions.

It had till now seemed obvious that the blunt instrument of a mono-price was a ruse to level up prices and that careful underwriting of propositions made sure the price was “fair”.

But this is not what is happening in workplace pensions. It seems that NEST and NOW and People’s Pensions and now Legal & General (who are moving into that space) are offering an awful lot for not very much.

Frankly, you have to work hard to get better underwritten terms from the insurers who adopt a “risk-based” approach – Standard Life, Aviva , Scottish Life, Scottish Widows, Aegon , Friends , Zurich and the large investment houses.

I wonder whether the position of the mono-price insurers is sustainable, I wonder whether the risk-based approach can work for the mass workplace pension market. There are of course insurers (for now just L&G) who will have a foot in both camps.

The idea behind a single price for everyone is distinctly mutual. It assumes that some more attractive propositions will cross-subsidise the less attractive. I mentioned this to David Pitt-Watson as an example of an insurer nodding towards collective DC - albeit with a GPP, a series of individual contracts. David did not buy the argument but I’m not taking it off the table.

In practice I am not sure that there is the appetite among some insurers to fully underwrite, We see tables in place for many classes insurers that segment propositions and drop them into pricing boxes. Rather than have an infinite number of prices, a half-way house might have four or five pricing bands some of which would be competitive (on price) with the mono-price , some not.

The mono-price in workplace pensions is now 0.50%. You can dance around the pin about the NEST and NOW charging structure but that is what you are paying across the piece.

The challenge for everyone will be to move the debate on from price whether mono or risk-based. A risk-based price above 0.50% needs to be explained (to comply) and that is a bet on employers focussing on value and on there being information/guidance/advice in the system that gives employers the chance to do this.

The only way I can see the information being delivered to the mass of SMEs and micros is via the internet , via self-service and decision making which does not rely on manual interventions.

If the pensions industry can find a way to get employers to make these decisions on pensions (as they do on many other things) then we are in business. The price issue will become secondary to the value issue and over time , the insistence on a highly risk-based approach will give way to a more mutual system.

I may be wrong, the idea put up by John Raven, that a risk-based system delivers more may be right, but intuitively I sense we are moving to a more pooled approach to pricing.

For now, the consumer has the best of both worlds, if he can find a way to do this cheaply, he has the option of underwritten or blanket terms (from the same provider). It will be fascinating to revisit this question in the next year and I have diarised to reblog about this in August when we have more experience and www.pensionplaypen.com ’s “rate a pension” service has some data to show what the customer (the employer) is chosing!

Heavyweight support for CDC – the Dutchmen strike back! (henrytapper.com)
So what’s new in pension reform? (henrytapper.com)
“Stick or twist” for the lifecos. (henrytapper.com)
The “advice gap” can and will be filled (henrytapper.com)
Those Dutch pension cuts in full! (henrytapper.com)
No learning without doing! (henrytapper.com)
A method to chose your workplace pension scheme. (henrytapper.com)
An encouraging tale of choice (henrytapper.com)
Whatever we do, let’s do it together (henrytapper.com)
“What’s expensive for a pension these days?” (henrytapper.com)

Posted in actuaries, dc pensions, defined aspiration, NEST, Popcorn Pensions | Tagged David Pitt-Watson, Insurance, John Raven, Legal & General, National Employment Savings Trust, pension, Scottish Widows, Standard Life | 6 Comments

Has Webb scotch’d the commission snake – or killed it?

Posted on May 12, 2013 by henry tapper

We have scotch’d the snake not killed it- Macbeth

Two years ago I took on a company who wanted me to advise them on their workplace pension. They had an existing adviser who they hadn’t seen in over a year and was not responding to their calls.

It turned out that the adviser was being paid a substantial sum every time someone joined their group personal pension arrangement and the company wanted to get something for these payments.

The company wanted me to take on the advisers role but be paid by the commissions but I could not do this, we will not take commissions on this basis.

I suggested instead that we negotiate a new arrangement with the provider so that members paid lower fees and the company decided what it wanted to pay me going forward.

Unfortunately, though the provider was happy to pay commissions to the adviser (who was still around to receive them) , they were not happy to reduce the amount being taken from member’s pots.

The company was faced with Hobson’s choice;

Cease paying into the old GPP and establish a new one on better commission free terms
Stick with the old GPP in the knowledge they were paying over the odds
Force the old adviser back to do the job it was being paid to do

In the end the company got sick of the issue. The Directors had made their own provision and we are now in the uneasy position where the company is reluctant to pay fees to improve the old plan or pay commissions to the absent adviser. It is now reluctant even to contribute to the plan, knowing the members are not getting value for money.

If the company ceases contributing, the members will suffer, but who is really to blame?

I am afraid it is a case of the financial services industry shooting itself in the foot by being lazy, greedy and inflexible. Worst of all, it’s a case of putting the customer last.

These dilemmas are not unusual. I wrote a blog on May 5th 2012 highlighting this very issue. You can read it here.

The train-crash I predicted would happen, did happen and nobody yet has started the heavy lifting to get the survivors out.

James Colegrave at Towers Watson commented to Professional Pensions

“consultancy charges are the most transparent of a number of charges levied by advisers and therefore the ‘easiest to target’.

In the past some pension providers felt they needed to pay commission to advisers to win business from employers who did not want to pay for advice themselves. Charges paid by members would be lower today if providers did not need to claw this money back.

Commission was banned as a way of financing new advice from the start of the year, but it’s not dead yet.”

I’d only disagree in the statement that commission is not transparent. It is transparent, it is declared on every key features statement issued to members.

I am quite sure that Steve Webb is choking on his corn flakes (if he’s reading this) and spluttering

“you try retrospective legislation to ban a system that you saw operating under your nose. I saw the trains, issued the warnings and still they crashed!”

The fact is that advisers like the one in the example above have been establishing GPPs over the past three years in the full knowledge that commission would be banned from January 2013 but in the certainty that their future income was future-proofed provided that the “commission-rich” GPP’s they set up then, continued to be funded by employers.

All the advisers needed to do was to make promises. They did not have to keep them.

There are thousands of companies out there with commission based GPPs. Some of them are getting a great service from their advisers who are delivering the services they promised. But many of the advisers are now out of the business and some are absent without leave, having decided they can take the income and not do the work.

Steve Webb cannot do anything about this. It happened on the FSA‘s watch, the FSA knew it was happening and have passed the problem on to the FCA. The FCA are working with the Office of Fair Trading and we can only hope that the OFT report due in the autumn highlights abuses such as the one I mention.

There is a catch-all set of prudential regulations known as “treating customers fairly” which were established by the FSA before it disbanded. These rules require , among other things, for advisers to do what they say on the packet.

It is regrettable that the main difference between a 2012 and 2013 GPP is that the 2012 model has a “rip-off loophole” which advisers can crawl through at any time in the future.

Steve Webb has more lawyers on his staff than he can shake a stick at and I’m sure they are pointing out to him that the risk of going after this commission outweighs the political advantage. If he plays his cards right, he gets his Regulator talking to the Treasury’s FCA and with a nifty pincer movement, they find a way of making commission inoperable.

There are ways that this could be don. Most easily they could use the “comply or explain” principles to ensure that advisers being paid out of the member’s fund, have to show that the commissions they receive have been earned and are not a way of financing their business. This could involve time sheets signed by the adviser and verifiable by the employer.

I’m sure this would be most unpopular with advisers, but it would put those who work and paid on commission on a level playing field with advisers such as James and myself who do measure our fees by the time we spend doing the work.

In time, if the cost of the work done by the adviser is less than the commissions taken, commissions could be reduced and of course vice versa. The employer could control the process and advisory fees could be something that formed part of a governance review. This is not fanciful, it is what happens with all our clients.

However it is extremely unlikely to happen voluntarily. What is more likely to happen (unless the FCA bears its teeth) is that employers will savvy up on all this and say enough is enough.

This week I launched a website which allows employers to go straight to a leading GPP provider and get terms of 0.48% pa. They do not have to pay an adviser to get them nor do they have to be of a certain size or have a certain average salary of be a young demographic.

They only have to agree to pay the minimum auto-enrolment contribution on the scale of their choice.

The employer in the case study is still paying 0.75% -more than 50% more than it needs to (for a comparable product). The cost of that 50% fee hike will only be experience at retirement , but it could be massive

The answer to the problem rests with people in workplace schemes, waking up and smelling the coffee.

Let’s hope that we can get people getting and standing up for their pension rights.

Steve Webb’s water-cooler moment (henrytapper.com)
Pot noodles member (henrytapper.com)
A momentous day for restoring confidence in UK pensions (henrytapper.com)
Everybody need standards (henrytapper.com)
Those Dutch Pensions – a Civil Servant writes (henrytapper.com)
End of pension fund rip-offs (express.co.uk)
Pension pots ‘saved from charges’ (bbc.co.uk)
Rip-off company pension fees which run to thousands of pounds axed for 11 million workers (thisismoney.co.uk)

Posted in annuity, Fred Goodwin, pension playpen, pensions, poetry, Treasury | Tagged Employment, FCA, Financial Conduct Authority, Financial services, Office of Fair Trading, OFT, pension, Steve Webb | 8 Comments

A momentous day for restoring confidence in UK pensions

Posted on May 11, 2013 by henry tapper

Friday May 10th 2013 is momentous for the pensions industry. It is the day the DWP announced the end to consultancy charging for pensions qualifying to be used in the workplace for auto-enrolment.

It is odd that a type of charge that is only four months old, could so soon be banned and since “consultancy charging” replaced a previous system of commissions, the announcement is as step short of banning all methods of getting members to pay for the costs of their workplace scheme.

The sting in the tail is that the DWP are going to consult, following the publication of the Office of Fair Trading‘s report on the subject, into the general charges paid by members for the scheme’s they are in. This is likely to result in a charge cap. Depending on the rigour involved, this could lower the bar to levels that make it unviable for providers to continue to offer trail commission to advisers of Qualifying Workplace Schemes(QWPS). The options will be to strip out the commission to get the boat back above the plimsoll line -or start a new scheme.

In any event, expect to see a new regime which requires employers to comply with strict rules or explain to staff and regulators why the organisation’s case is special.

Nothing has been lost

The opportunity to advise has not been lost, it has changed. Pre-payment is ending (though it persists where there is still commission in the schemes), but a “payment on delivery” model is still viable.

Advisers who are prepared to sell their time at an agreed rate, can charge explicitly for expenses including preparation and documentation. A pre-agreed program that delivers to expectation is likely to be repeatable and get referrals.

This is not an easy business to build, but it is one that my firm First Actuarial, has been building since its inception in 2004. We now have 150 staff, have never taken commission and do not take fees from members (though we may charge per capita fees to the employer).

Though there is only one pot from which fees and contributions are paid for, it’s the fact that the employer is in control of what is being paid, that makes the employer funded advisory model acceptable both to employers and Government.

Advising on and managing “business as usual”

Where there is a need to help employers through staging and onwards to ensure ”business as usual”. The commercial justification for paying an expert to “hand hold” is the cost to the business of getting it wrong which is usually much higher than the cost of getting it right.

This is a business risk and the cost of sorting it should not be born by members. The costs of establishing a project plan and delivering to it, of creating bespoke staff communications, managing the payroll obligations and ensuring that all interfaces between payroll, HR and the provider work is worth paying for. But it is not up to the member of the scheme to foot the bill.

Consistency going forward.

We are in danger of having two types of workplace pensions. Those that were properly set up and those that were set up with consultancy charging and commission pre-paying for advice (which may never be delivered) or for “business as usual services” which should have been paid for by the employer.

That schemes established up to 31/12/12 can be allowed to reward advisers through commission, while schemes set up from 01/01/13 can’t is patently absurd. Unless something is done about commission schemes, especially those sold in the run up to RDR on a “buy now while commission lasts” basis, is absurd.

We must urge the OFT and DWP to be strong on this. We cannot have confidence in a system where member’s pensions can be impacted by as much as 30% through advisory arbitrage.

No sympathy

The Government should have no sympathy with arguments that advisers were only playing by the rules in 2012. Advisers who openly ran seminars encouraging employers to set up a scheme for a couple of staff in 2012 so that commission could be paid to all staff joining in the years to come, were not acting in the best interests of the members who were ultimately their clients, if the scheme was occupational, they were inciting trustees to act against the interests of their members.

If those advisers who sold these schemes want those schemes to qualify as workplace schemes, they should revoke their entitlement to trail commission and move to a fee charging structure with the employer where the employer pays for work carried out. This will allow the charges by members to be adjusted downwards.

It seems to me the DWP are giving these advisers a limited window to get their heads round the new charging paradigm. If they do not react and sort the issue prior to the consultation, these advisers risk being “hung out to dry”.

I and other people who are set about restoring confidence in public pensions , will have no difficulty in assisting in that process.

The time for systematic abuses of the member through practices such as trail commission, active member discounts and salary sacrifice arrangements where employees take the pain and employers the savings is over.

10/05/13 is a momentous day for pensions, it is a momentous day for those of us who have campaigned for good and it’s a momentous day for www.pensionplaypen.com which has been set up to allow employers to choose and implement good schemes and know exactly what they and their staff are going to pay.

Posted in auto-enrolment, Payroll, pension playpen, pensions, Popcorn Pensions, workplace pensions | Tagged Actuarial science, Business, Consultant, DWP, Government, Human Resources, Office of Fair Trading, pension | 6 Comments

Get up! Stand up! For your pension rights!

Posted on May 9, 2013 by henry tapper

I haven’t seen too many smiley faces among Pension people , certainly not in the last five years.

But yesterday, at Workplace Pensions Live 2013, the sun broke through the clouds (metaphorically). Part of this was to do with it being a great even, brilliantly hosted by David Blackman, well supported by Maggie Williams and her team and held at the best of venues – Edgbaston Cricket Ground!

There was a moment in an afternoon session panel debate after much talk of the surprising reluctance of the great British public to opt-out of the new breed of workplace pensions when David Blackman asked the audience for their experience of pensions governance in the workplace.

Like a Quaker I felt moved to speak and blurted out that at our company, staff had got to fed up with the poor service , high charges and lack of development of our workplace pensions that our staff had risen up against us and demanded a new pension scheme – which they have got.

I don’t know how this went round around the hall but as this was hardly news to me, I was surprised that it seemedweird to the panel. One panelist labelled my staff as “unusually sophisticated” and that this was a one-off, another made the point that most employees don’t know that there is any better so will remain supine.

Let’s deal with these comments.

First Actuarial staff ar no more or less savvy than anyone else, they just have better access to pensions information.

The great British Public is pretty money savvy, sit at the checkout of any supermarket and watch how people use vouchers, special offers and seasonal buying to bring down the cost of their shopping, note the use of www.moneysavingexpert.com and note the general awareness that something has not been right about pensions.

The public get it, the pension industry doesn’t.

Given the opportunity to get a better pension, staff at First Actuarial got a better pension, I would argue that we differ only from other workforces in knowing that the door is half open. If we can get people as pensions savvy as Marting Lewis gets them money savvy, they will do the rest.

Now let’s think about that second comment. Most people do what they can to do the best thing. That included buying PPI (clearly marked as a “good thing” – an inertia sell but a sale nonetheless).

Unsurprisingly , the 4.2m who have subsequently downloaded PPI claims forms from Martin Lewis’ site and are awaiting financial redress, have done the right thing. The banks have blown their “trusted adviser” brand, Martin Lewis has it now.

Do you not think that the same can happen in pensions?

We have not given people best value from their workplace pensions, it’s not a scandal but we have brought pensions into disrepute over the past twenty years by failing to do the best for the great British public.

Do you not think that the great British public are looking for some leadership which says

“this is what makes for good”

“if your employer doesn’t offer you this you should ask for it” “

if he doesn’t listen go and get another job/ moan to the union/ organise your colleagues and make a pain of yourselves”.

The cost of pension provision has plummeted, your employer can now provide good quality workplace plans for you and your colleagues for less than 0.5% – that’s half the cost of a stakeholder pension. The quality of admin, investments, communications and at retirement assistance has all improved over the past ten years. Pensions aren’t perfect but they’re getting there!

And it costs employers so little to give staff so much. In our pensions upgrade, First Actuarial halved management fees, improved the default investment option, gave a SIPP option to those who want it and lined up with a provider with a sustainable business plan. It was not hard.

We need to make it easier for employees to know what is good, especially those who have influence over corporate pension purchasing. We need to make it easy for employers to find good and implement good and we need to get staff and employers talking about the funding levels into these pensions. That’s what www.pensionplaypen.com is all about!

Governance on these schemes cannot be imposed by Government, it needs to happen organically – bottom up.

It needs staff who hassle employers who hassle providers.

But if Government can create , as they have created with auto-enrolment, the conditions where people will stand up for their rights for a proper workplace pension, if we can give employers access to good quality schemes and if providers can deliver as they say they will, we will have better pensions in this country and the chink of Brummy sunshine will brighten us all up!

Most people think,

Great God will come from the skies,

Take away everything

And make everybody feel high.

But if you know what life is worth,

You will look for yours on earth:

And now you see the light,

You stand up for your rights.

Bridging that advice gap – 43rd London Pension Lunch (henrytapper.com)
Everybody need standards (henrytapper.com)
No learning without doing! (henrytapper.com)
“What’s expensive for a pension these days?” (henrytapper.com)
Can social media play a part in pension scheme governance? (henrytapper.com)
A method to chose your workplace pension scheme. (henrytapper.com)
Better-buying makes auto-enrolment work (henrytapper.com)
Those Dutch Pensions – a Civil Servant writes (henrytapper.com)
Those Dutch pension cuts in full! (henrytapper.com)
“Cynicism’s” trending on #pensions (henrytapper.com)

Posted in cricket, governance, investment, pension playpen, pensions, poetry, Popcorn Pensions | Tagged Actuarial science, Edgbaston Cricket Ground, first actuarial, Government, Maggie Williams, Martin Lewis, pension, Self-invested personal pension | 7 Comments

Heavyweight support for CDC – the Dutchmen strike back!

Posted on May 6, 2013 by henry tapper

Con Keating

Yesterday , I published a critique of David Pitt-Watson’s work for the RSA, the Dutch collective pension system and my support for both. The critique was produced by John Lawson of Aviva and it received some support on Twitter and the comments pages surrounding the blog.

It was also read by Per Andelius http://www.andelius.com a Swedish pensions expert who passed it for comment to Con Keating – well know to readers of this blog being an adviser among other bodies to the Bank of England.

Here is Con’s response to his friend Per, published with his permission, in its entirety,

He is not correct in a number or regards.

The best source for Dutch data is the DNB and that report by Jacob Bikker is unimpeachable.  Contrary to what he says LCP have in  conjunction with every other consultant every  incentive to exaggerate the costs of Dutch  schemes.

I for one do not believe they are anywhere near 20% of contributions – that  would make them over 50% above the levels I  see here in the UK and I believe them to be more efficient.

He seems to feel that  Collective DC is not superior to Individual DC - in this he is wrong. The GAD say 20-25% but in simulation 39%. I have looked at this  myself and it depends upon the level of  diversifiable risks – it was never less than  20% in my own simulations and often in the  range 30-40%

The schemes (66 of them of of 482) in Holland   which have had to cut benefits at the  insistence of the regulator (for being below  105% funded) have all been of the traditional  DB form, not CDC - no CDC arrangement has been required to reduce benefits.

The advantage of   CDC does come in part from their ability to  maintain higher equity holdings for longer  periods of time. There is no need to de-risk in an inter-generational structure.

There are no facts about how long people will live – no matter what assumptions are necessary.

It is  clear that the individual structure is inferior to the collective, for all but a very  few gifted people.

Perhaps he has included in his cost figures the costs of CDC but the majority of dutch CDC schemes have taken out insurance policies  which guarantee minimum returns for certain  periods (usually the next five or seven  years).

The £25 cost figure he cites for individual schemes in the UK is nonsensical as  a mere glance at the costs of NEST or NOW would reveal immediately.

The €356 figure  comes from the LCP ”study” which I have never seen. I have seen smaller figures but the  point needs to be made that the quality of  service matters – and in Holland that is high, remarkably so in many cases.

The piece by Andy Cheseldine is another of the LCP articles – it confuses the schemes which  do have to cut with those which are CDC. When I look at the Bikker study, I see cost results which are materially better than are achieved ib the UK – but that is mutual DB in Holland  being compared with sponsor guaranteed DB in the UK and in theory at least, the latter  should be more efficient.

As for the RSA being political – it was formerly formally a qualifications awarding        body – albeit many were of a vocational nature. It is headed by Vicky Heywood, who  also sits on the Council at Warwick and is  involved in another vocational qualification  board: City and Guilds.

It sees its role now as being to promote debate – it has obviously  succeeded. It has a statement of objectives on  its website, I think. (It must have to meet  Charity Commission requirements).

If you look  o the trustees there are none who are overtly  political (or as far as I know,          surreptitiously so.) David Pitt-Watson who authored the RSA reports is a staunch Labour   man – he almost became the Labour Party Treasurer. He is also a good friend of mine,      and would not stoop to deliberate misrepresentation. That would run counter to           everything he has done in corporate responsibility and sustainable investment.

He was alone for much of the time with his work   for Hermes and the BT pension scheme on that work.

There is a general mood in Britain today of frustration with our funded pension system, especially the DC element. People don’t trust it.

When the collective system put in place by Barbara Castle in the late 70s was reined back and eroded by cuts and appropriate personal pensions, those who talked of collectivism and inter-generational transfers were silenced.

For 25 years it has been the individual personal pension that has been promoted. When the Government had the chance between 1997 and 2001 when they conducted the stakeholder review, they missed the chance to return to a more efficient system. Frank Field was sacked and stakeholder pensions emerged a pale shadow of what they could have been.

There are still people, like John and PJ Zoulias who live the Thatcherite dream that sees every man their own CIO and releases us from obligations to and from others. This vision of self-reliance is based on financial empowerment and a trust in our private financial institutions to do the right thing.

At the very least, this model needs to be challenged.

The real challenge laid down by the Dutch is not to get charges down, it is to establish a system of social governance that ensures that power is in the hands of the fiduciaries who act for the members. This will not only keep charges down but will ensure that there is more risk diversification (Con’s phrase – most people refer to this as risk-sharing).

Necessarily this will mean a transfer of power from insurance companies and pension consultants and into the hands of governance bodies who act for the member rather than the shareholder (or partnership).

This is the great battle waiting to be fought out over workplace pensions. It can only be engaged when we know the terms of the debate and that is what David Pitt-Watson and the RSA have been assisting us to understand.

Dullards like me, follow behind and start getting it because of pioneers like David and his colleague Harry Mann. They are, to me, part of the Force for Good which will be promoted in the months and years to come by http://www.pensionplaypen.com.

All the people who are mentioned in this blog are involved in that debate and without John and PJ and Saq Hussain on one side, there would be no dynamic for David and Con and Per to argue their case,

I sit and watch; – like 1.2m other employers, I just want to see the money I pay into a workplace pension generate the best outcomes it can.

Those Dutch pension cuts in full! (henrytapper.com)
“Stick or twist” for the lifecos. (henrytapper.com)
Those Dutch Pensions – a Civil Servant writes (henrytapper.com)
“What’s expensive for a pension these days?” (henrytapper.com)
Whatever we do, let’s do it together (henrytapper.com)

Posted in actuaries, advice gap, auto-enrolment, CDC, David Pitt-Watson, NEST, pensions, Retirement, workplace pensions | Tagged Aviva, Bank of England, CDC, David Pitt-Watson, Dutch, Government, John, pension | 7 Comments

The “advice gap” can and will be filled

Posted on May 2, 2013 by henry tapper

You can only pay a compliment to someone who respects you . Because you can only accept a compliment if you trust the person paying it and respect their judgement.

So I’d like to thank Dr Debbie Harrison for paying me and www.pensionplaypen.com a compliment last night at the NAPF’s PensionsConnection event.

The good Doctor was speaking in her capacity as Member of the Financial Services Consumer Panel www.fs-cp.org.uk but you may know her as a campaigning journalist or as a visiting Fellow at Cass Business School.

The compliment?

Speaking on the DWP review of consultancy charge which we expected in April but will now be delivered in May, Debbie spoke of the potential “advice gap” left by commission based employers withdrawing from the market and smaller employers not being able to pay the four or five figure fees of the traditional pension consultancies.

But Debbie was sanguine, she saw new services filling the advice gap . This is what she had in mind…

Good quality web-based systems run by actuarial consultants to help employees select the best scheme for the employer./employee profile
Low one-off cost (c £500) with certificate from actuarial firm for audit trail in relation to employer decision.
Almost certain that several major life offices will support the type of service in order to compete in the new “direct to employer” market established by NEST and its competitors.

I sat there, the proudest man in the room and when she mentioned that this service was about to be offered by me, I felt like a 16 year old kid who has just won through on the X-factor.

We can pretend all we like that we aren’t affected by compliments and that we are cold hard-hearted businessmen; but when someone sticks their neck out like Debbie did for me last night, you can get a lump in your throat.

For what it’s worth, I do think there is an advice gap and I do think that there is a direct to employer market for NEST and others. I think that employers will pay to have their decisions certified and presented back to them with a full audit trail and I think the amount they should pay is £500. I think employers are capable of taking difficult decisions on what is right for them and their employee profile and I think that actuaries are well-placed to martial the information and organise it to help those decision to be made.

In short, I believe Debbie is right, I have put my and my friends money where her mouth is and we will be launching www.pensionplaypen.com to the market next week. The full functionality she is talking of is being built and should be ready by July.

It is often hard to accept compliments because you do not trust their source or respect the judgement of the person paying the compliment. But on this occasion it was very easy.

Thanks Debbie!

Everybody need standards (henrytapper.com)
A method to chose your workplace pension scheme. (henrytapper.com)
No learning without doing! (henrytapper.com)
Shopping for pensions (henrytapper.com)
“What’s expensive for a pension these days?” (henrytapper.com)
An encouraging tale of choice (henrytapper.com)
“Stick or twist” for the lifecos. (henrytapper.com)
Improving governance and best practice – Work and Pensions Committee (henrytapper.com)
Cometh the hour;- the Regulator gets its man (henrytapper.com)
Tomorrow’s problems today..the OFT on pensions (henrytapper.com)

Posted in actuaries, advice gap, auto-enrolment, dc pensions, pension playpen, pensions | Tagged Business, Cass Business School, Consultant, Financial services, Insurance, National Employment Savings Trust, pension, www.pensionplaypen.com | 2 Comments

Those Dutch pension cuts in full!

Posted on May 1, 2013 by henry tapper

News from across the North Sea of the demise of the Dutch collective DC system appears to have been sourced from the same agency that gave us the Dutch lad with his finger in the dyke.

Final figures from the Dutch central bank DNB show a total of 66 Dutch pension funds have been forced to curtail pensions due to funding shortfalls.

The cuts in pensions – averaging 1.9 per cent – were necessary for the funds to achieve minimum funding ratios enforced by DNB of 105 per cent by April 1. The reduction applies to both pensioners and the rights accumulated by active members, which are also reduced.

Two funds that initially were expected to apply cuts were bailed out by sponsor contributions.
According to DNB, 37 funds expect to be forced to curtail pensions further to achieve their recovery targets, with an average cut of 1.7 per cent (weighted by the pension liabilities held by each pension curtailing fund).

The final figure will depend on funding ratios at the end of 2013.
In all, two million active members face cuts to meet funding ratio requirements, as well as 1.1 million pensioners and 2.5 million “sleepers”(members who have changed jobs without taking their pension rights with them to the new employer’s pension fund and who may be counted twice in the statistics). Further curtailment would affect 1.3 million active members, 0.7 million pensioners and 1.1 million sleepers.
Total pension liabilities of the 66 funds curtailing amount to €410bn.
DNB’s figures follow confirmation earlier this month from civil service scheme ABP that, despite a recent recovery in its funding ratio, it would cut pensions by 0.5 per cent from April. (European Pension News)

Here is a little perspective. The Dutch system works rather like the with profits system. The current levels of pension being paid to Dutch pensioners have been shown by David Pitt-Watson and others to be producing approximately 39% more than our “guaranteed pensions” in the UK which we might regard as “not for profit” but fully guaranteed.

So what Jan Dutchman is getting is a reduction in his advantage from 39 to 36.4% (my maths stands corrected) over his British counterpart. It is true that Jan does not enjoy total security over his advantage (except for the payments he’s already had) but I do not see rioting on the streets of Amsterdam and Leyden over the iniquity of this pension cut.

Which begs the question “crisis what crisis?”.

If we are looking for a pension system that defers pay then would we not (still) chose a system with 36.4% better outcomes? Couldn’t we live with the odd cut in our with-profits bonus?

What price the guarantees of the British system – a pay cut of 36.4%?

I’m feeling jolly underwhelmed by these cuts and if is the worst news Jan Dutchman hears this year- lucky old Jan!

“What’s expensive for a pension these days?” (henrytapper.com)
Pension funds warned over fees – Confused.com (confused.com)

Posted in actuaries, Bankers, pensions | Tagged Amsterdam, David Pitt-Watson, Dutch, Financial services, Funds, Investing, pension, Pension fund | 11 Comments

No learning without doing!

Posted on April 28, 2013 by henry tapper

Pension people are obsessed with engaging the British people about the importance of pensions while the great British public was as little to do with pension plans as possible.

That will not change. What can change is that the great British public become properly “pensioned” by joining and staying in good quality pension plans. Plans that deliver good incomes and a healthy dollop of cash when it’s needed (when the money from work dries up).

While we welcome pension enthusiasts to our “geekernity”, we secretly admit that we are glad we are a small and self-selecting community of saddoes. We should not be inflicting the complexity of the UK pension system on the Great British Public, our job is to manage the legacy – spend time in our garden shed and let people get on with their lives in peace.

Which may sound a little rich from the Pension Plowman with 850 pension blogs under his belt.

But the time has come for some action and over the next ten days, you will get it from me and my colleagues at www.pensionplaypen.com.

We’ve had enough of teaching and want to get people doing. At the moment, if you want to set up a pension scheme for your staff which provides good benefits to members rather than advisers, fund managers and insurance companies, you have to be determined.

NEST has one, NOW has one, there are lots of smaller mastertrusts like BlueSky which your employer can sign up to with relatively little ado. But I bet you feel nervous about buying a house without looking at other properties in the neighbourhood. I bet you’d be worried about what your family said it you didn’t have a look at the other houses on sale.

What about the big insurers? The Legal and General‘s and Scottish Widows of this world. Can you do something with NEST without checking on the competitors?

And what about your existing workplace pension? If your company runs a plan , is it any good? What yardstick can you use it to compare it to the market and if you find out it’s sub-standard , and if you do find it lacking – what can you do about it.

We wouldn’t let a car out on the road each year without its MOT, but many pension schemes are into their second or third decade without their tyres getting a kicking; pensions people call it governance but you can call it a “pensions check up”.

At the moment you can learn as much as you like about what makes for good, but there’s not much you can do about it , short of employing someone like me to look into the situation and charge you quite a lot of money (I don’t come cheap).

But you may not have a lot of money and if you do, you’d rather be paying it into people’s pensions pot than lining my pockets.

So whether you are a first time buyer, you’re looking for a pension MOT or you’re deciding your old plan is not up to it and want a new one, it’s my job to find a way to help you.

And here’s the refreshing bit, I want to help, I can help but I don’t want your money.

The great thing about what is happening right now is that technology is setting you free. You don’t need to spend a fortune to end up in a good place. Even the pension minister has said it, the DWP wants you to set up your workplace pension scheme for nothing.

NOTHING that’s precisely how much it will cost you to get an excellent pension plan at less than half the cost of a stakeholder pension.

No fees, no commissions and no hidden costs.

How can this be done?

It can be done for nothing because a low-cost website can do a lot with a little advertising revenue. Because there are some things that employers want to pay for (auditing and certification of due process) and because over time, the information on people’s patterns of purchases builds a value in itself.

Martin Lewis has 86 million reasons to show that you can run a for-profit service with the trust of your public- you just have to be straight with people about what’s going on.

No learning without doing – and if it’s worth doing- it’s worth doing well!

“Stick or twist” for the lifecos. (henrytapper.com)
“What’s expensive for a pension these days?” (henrytapper.com)
Some of our insurers are missing (henrytapper.com)
Better-buying makes auto-enrolment work (henrytapper.com)
EU rules would double cost of British pensions (telegraph.co.uk)
Primavera for the pension plapen (henrytapper.com)
Primavera for the pension playpen (henrytapper.com)
Can social media play a part in pension scheme governance? (henrytapper.com)
Everybody need standards (henrytapper.com)
Improving governance and best practice – Work and Pensions Committee (henrytapper.com)

Posted in auto-enrolment, pension playpen, pensions | Tagged Bluesky, British people, DWP, Legal & General, Martin Lewis, National Employment Savings Trust, pension, Scottish Widows | 17 Comments

Steve Webb’s water-cooler moment

Posted on April 27, 2013 by henry tapper

The auto-enrolment experiment marks a first for UK Government. For the first time, a public policy initiative will be judged not by what happens, but by what doesn’t happen. Steve Webb‘s primary metric for judging our appetite for the new pension reforms is the number of people who vote against it and opt-out.

So far the run rate looks like 10% and the Minister has made himself a hostage to fortune, “downhill all the way” is what his critics are whispering, pointing to lower levels of engagement the further you go down the employer food-chain.

Far from sitting on his hands, Steve Webb has been very much on the front foot, launching his pot follows member initiative in a week when the Work and Pension select committee issued their report on workplace savings and the FCA put their foot down on platform rebates. Government intervention in the savings market has never been so marked.

Ominously though, the noise is very much between policy makers , the manufacturers (funds and platforms) and the distributors. The consumer is not yet part of the loop.

All that is going to change as debate on pensions moves out of the Westminster Chambers and the offices of the ABI/ IMA /NAPF and the various think tanks and into the workplaces of the million plus organisations for whom auto-enrolment into work place pensions will be new.

Last week I argued in this blog that we are not really prepared for what will happen - how can we be - nothing like this has ever been tried before. We may try to control the Tsunami as it rushes at us but we could be washed away if we do. Better for us to move to higher ground and watch and listen.

Vincent Franklin put it well in a comment on the Pension Play Pen

If we think that we can moderate social media conversations to make sure that Mum and Dad approve of people’s language and that nobody’s being rude about Auntie Edith, then we don’t know how social media works – or how useful it can be.
Social media is self-policing. That’s its strength. If someone posts a ridiculous or ill-informed opinion, other members of the community correct them. Mum and Dad can join in the conversation if they need to, adding new thoughts, but it’s not THEIR conversation, it’s not THEIR media.

Just like the water-cooler in the traditional office, conversations that go on in social media belong to the participants. And if you try and clamp down, they’ll just move to the photocopier or the mail room. What’s great about social media, unlike the water-cooler, is that you know what people are saying. . That’s what brochures and letters were for. Remember them?

So there’s your take-away Mr Webb. The challenge for the DWP is not to take charge but to watch and listen. The danger is that policy is made by those not watching and not listening.

Steve Webb is hearing second-hand whispers around the water-cooler; people (it is said) are not happy with loads of pension pots- ok, let’s sort pot follows member; people are saying they can’t stomach falls in the nominal level of their pot – ok, let’s give investment to the banks with their structured products;

NO!

Read what Vincent is saying again. Social media is self policing, some things said are daft and sometimes you have to wait till things correct.

If you are a policymaker you need to be asking the meaningful question

Would people be prepared to lose 10% of your pension pot to get one great big pot or another 10% to get a big fat guarantee?

There is no doubt that Steve Webb wants to be at the water cooler and no doubt he is hearing what he can from the people who turn up at conferences and from his advisers.

Now he can be a little more ambitious and ask the meaningful questions to those at the water-cooler.

He could use opinion pollsters or get people into focus groups , he could go on question time and ask for a show of hands. That’s how it used to be done – small samples , expensive with unwanted bias’.

Or he could be a little braver and go and talk with the people who really know how to find out what the public want – Money Saving Expert, MoneyMail ,the Sun , bbc.co.uk. He could get them to ask their publics the meaningful questions.

If Steve Webb really wants to manage the AE Tsunami , he should be asking questions about the key trade offs around every digital water-cooler in the land. These big bets around “pot follow member” and ”defined ambition “ are about how people buy things and the price they are prepared to pay for them.

Never before has a Government had such an opportunity to find out what people want and are prepared to pay for and what they just don’t understand.

So why doesn’t it ask?

Honest! Open Government in operation! (henrytapper.com)
So what’s a good DC pension – Mr Webb? (henrytapper.com)
When pensions de-mutualise (henrytapper.com)
How Payroll won friends and influenced Government (henrytapper.com)
Hoggart on Webb: “He understands it so you don’t have to! Thank heavens!” (libdemvoice.org)
Government: Take advantage of workplace pension (itv.com)
Pot noodles member (henrytapper.com)
Everybody need standards (henrytapper.com)
Working for the clampdown? (henrytapper.com)
Lord make AE simple – but not yet! (henrytapper.com)

Posted in actuaries, annuity, pension playpen, pensions, social media | Tagged DWP, Minister (government), pension, social media, Steve Webb, Sun, Vincent Franklin, Webb | 10 Comments

“Nothing to do with us guv” – a sideways look at the FCA’s rules for platforms

Posted on April 26, 2013 by henry tapper

This is how the FCA is selling us the abolition of rebates on retail platform business.

The Financial Conduct Authority has published rules to make the way that investors pay for platforms more transparent. In the future, platforms, in both the advised and non-advised market, will not be allowed to be funded by payments (commonly described as ‘rebates’) from product providers. Instead, a platform service must be paid for by a platform charge which is disclosed to and agreed by the investor.

Currently, providers of investment products, such as investment managers, generally pay a rebate to some platforms in order to have their products included on a platform. This rebate comes from the annual management charge (AMC) which is paid by the investor to the fund manager. As a result, some platforms are able to give the impression that they are offering a free service, which means that the investor may not understand the true cost of the service provided by the platform.

This appears to me but half the story. What if you are a bold fund manager looking to build a business around being true and fair in your dealings with your unitholders? Let us say you off a true and fair charge of 1% pa on your fund which is inclusive of all your costs because you carefully manage them. Now let us suppose you go to a platform manager who demands a rebate of 0.75% for the privilege of distributing your fund.

This is the Tesco choice, pay up and risk ruin as you “sell at a loss” or hold out and find yourself a leper, excluded from the platform’s buy-list.

Consumer detriment? Well a top manager may find he has no shop window on a top platform and people will ask questions. What does that manager do? Disclose that he is being held to ransom or keep mum?

If he’s worth his salt he says

to hell with you, I can distribute myself and I’ll wait till some regulator sorts this out

There is a straightforward alternative to this , which has been adopted by Legal and General (the life company rather than its subsidiary Co-funds). quite simply L & G apply a platform charge on all funds which is added to the factory-gate price of the fund and the price the customer pays is the combination of the two.

Why I prefer this is that I know that the platform has been consistent in its pricing across the board and that where a fund manager has dropped his pants, he’s done it to get the customer a better deal, not to add to the platform manager’s bottom line.

You can read the rest of the FCA’s press release here. No need to bother!

———————————————————————————————————-

Something that surprises me is the lack of interest in all this from the lah de dah institutional platform managers – the insurers and a few up-market workplace platforms (Hargreaves Lansdowne straddling the divide).

Along with the warning-off of rebates are some robustly worded statements about the use of advertising to buy your way onto best advice lists. I hope the FCA will have their binoculars trained on the corporate boxes of the asset managers this summer. We wouldn’t want any of our virtuous investment consultancies being mistaken from their chavvy retail cousins in taking the fund manager’s shilling.

UK financial watchdog rewrites fund supermarket rules (uk.reuters.com)
Cost of investing in funds to fall (telegraph.co.uk)
operate (plaint101.wordpress.com)
FCA brings in upfront fees (standard.co.uk)
Low cost ways to draw on a pension pot (telegraph.co.uk)

Posted in pensions | 2 Comments

Pot noodles member

Posted on April 26, 2013 by henry tapper

The urban dictionary defines “noodling” as mulling over, thinking about, contemplating, pondering and puzzling. Steve Webb has been pot noodling for some time and if his plans to instigate a system of compulsory transfers for those with less than £10k becomes law, I think we’ll be noodling plenty more.

I’m into aggregation people who can get a single value for their DC pensions become happier more confident savers and pensions takes a step closer to being liked again.

In 2001 I wrote a paper suggesting a national aggregator for stakeholder pensions. It was waived in the House and got a mention in Hansard but it’s 15 minutes are long gone. It is probably harder today (on an execution only basis) to aggregate pots as at any time over the past twenty years (a legacy of pension mis-selling). Even if you do get the go-ahead to aggregate, you are prey to a multitude of vicissitudes.

I have seldom seen a transfer “out of the market” for less than a week. On an equity to equity basis, that means a lot of risk. Then there’s the execution cost which is supposed to be free but exposes you to the lottery of the single swinging price not to mention the paper mountain thrown up. Ask insurers about the costs of an execution only transfer and then double it to get an adviser involved.

The insurance companies are not geared up to the minimal amount of aggregation going on today, their priorities in systems development have been in other areas, transfers is a toxic word that reminds them of the great mis-selling disaster about which they are still sore.

To get insurers and mastertrusts to voluntarily upgrade systems and processes to make for a free flowing pot-follows member merry-go-round will cost a lot in systems time. This time is currently over-stretched dealing with auto-enrolment and the “on boarding” of 1.2m new employer schemes. Insurers are adapting to the post RDR world and struggling with new distribution channels. The news of pot-follows- member arrives on their doormat like an investigation from HMRC.

It does not have to be like this. We do not have to transfer pots to get the benefits of aggregation. Virtual aggregation where the pot is linked to a central register and viewed with other pots linked to a person’s Nino is a much more elegant idea. While it relies on a central register, which government’s are pants at operating, it can be linked to existing registers, which the DWP are at last learning how to use. Issues around security won’t go away but we’ve got to put some trust in a technology dividend to make them easier over time.

Steve Webb has three big ideas

Pot follows member
Defined Ambition
Minimum standards for Qualifying Workplace Pension Schemes.

I would argue that two out of three ain’t bad and that if he gives up on one it should be (1)!

If Steve Webb chooses to press ahead, he should listen not to me but to the people who have to implement the service standards that a pot follows member system would have to adopt. The business case for the spend to make this happen properly is hard to make, the prize too small, the cost too high.

Think technology Steve, small pots will become a lot smaller through aggregation and operation big fat pot may end up being renamed “Webb’s folly”.

Government outlines new plan for pensions pots (standard.co.uk)
Working for the clampdown? (henrytapper.com)
Automatic transfers for small pension pots less than £10,000 announced (thisismoney.co.uk)
Pensions: ‘pot follows member’ system to be introduced (guardian.co.uk)
Everybody need standards (henrytapper.com)
When pensions de-mutualise (henrytapper.com)
So what’s a good DC pension – Mr Webb? (henrytapper.com)
Improving governance and best practice – Work and Pensions Committee (henrytapper.com)
“Stick or twist” for the lifecos. (henrytapper.com)

Posted in pensions | Tagged Department for Work and Pensions, DWP, Employment, Hansard, Insurance, pension, Steve Webb, Webb | 9 Comments

All that glitters does not lure – thoughts on DC default funds.

Posted on April 21, 2013 by henry tapper

Cedar plug lure- deeply unexciting

There’s oil and snake oil, cheese and ripe gorgonzola and there are shiny fishing lures.

In a fine article sent me by Alan Miller I read that its author, John West (coincidence) of Research Affiliates tells a story of an encounter with a fishing tackle salesman who was selling lures that bore little resemblance to fish.

“I asked him, ‘My God, they’re purple and green. Do fish really take these lures?’And he said, ‘Mister, I don’t sell to fish.’

I won’t re-write John’s article - you can read it here. Here are his key insights

It adds to a consensus that long-term returns from a balanced portfolio of bonds and cash are unlikely to beat inflation by more than 4%
Promises of returns of 8% above inflation , based on past returns by US endowments (Yale and Harvard), are snake oil. The methods used are not available to retail investors today.
The means retail investors use to access Hedge Funds (fund of hedge funds) is so expensive, that its introduction damages rather than improves returns.

In summary , Research Affiliates conclude that funds of hedge funds may “hedge” but they don’t “return” and investors would be better off getting diversification from simpler multi-asset funds which diversify but at a fraction of the expense of fund of hedge funds.

To quote again from the article

Commodity futures, emerging market local currency bonds, bank loans, TIPS, high yield bonds, and REITs all have unique return drivers and will respond differently to various market environments. Shouldn’t we employ these in our asset allocation on a scale large enough to matter?

There is good news here for ordinary people. Several of the largest pension providers who we speak to , either have introduced or are planning to introduce funds that work in this way as the defaults for their workplace savings plans. In our new auto-enrolled , these funds will be employed on a scale large enough to matter.

The cost of these diversified funds are little more than their predecessors, the passive global equity funds that form the body of the lifestyle options that have been so popular over the past ten years.

This is evolution not revolution. The returns from the new breed of multi-asset funds will not shoot out the lights (they aren’t targeting 8% real) . Hopefully they will get equity like returns without the volatility of their pure equity predecessors and without the prohibitive pricing structures of fund of hedge funds.

These funds are, in short, neither snake oil, ripe cheese nor shiny lures. They are deeply dull.

If the providers of workplace pensions are prioritising DC outcomes over marketing advantage – good for them. We should start giving credit where credit is due.

The dynamic diversified strategies of NEST and NOW, Bluesky, SHPS , Pensions Trust, L&G, Aviva and Zurich to name but a few, all offer variations on the theme “low-cost diversified defaults that target good DC outcomes not marketing brochures”.

I’ll use John West’s conclusion

As a fishing enthusiast growing up in San Diego, I can tell you I caught more tuna on as plain a lure as you will ever find—the cedar plug. Vaguely resembling an oblong torpedo with a single hook, the cedar plug has a lead head and a tail of unpainted cedar wood. There’s no fisheye, no silver and blue (let alone purple and green!), and no paint anywhere. Just dull lead and the rusty hew of cedar wood. If there was ever a lure that wouldn’t sell in the tackle store, this is it. And yet it produces

Can a hedge fund make your money prosper? (henrytapper.com)
John Paulson is no longer the man with the Midas touch (guardian.co.uk)

Posted in auto-enrolment, CDC, dc pensions, fish, governance, investment, pensions | Tagged Alan Miller, Business, Funds, Hedge fund, Investing, Mutual fund, Real estate investment trust, SHPS | 3 Comments

Can a hedge fund make your money prosper?

Posted on April 20, 2013 by henry tapper

Here is a question asked to members of our Pension Play Pen by Alan Miller. It’s a long question so I’ve broken it down a bit- my answers at the bottom!

When you consider predictions (eg LBS’s Dimson & Marsh) that the future growth in equities may well be just 5% pa.

(check out the Credit Suisse 2013 yearbook)

…..and that an average hedge fund is effectively typically effectively about 60% long

(that means that it expects to get 60% of its return from said equities)

once you put in 2 lots of high charges as per a traditional fund of fund structure, it should not be such a surprise why you would be much better off investing in a dynamic multi-asset fund instead.

Hedge funds typically charge 2% of the contributions and 20% of the return, a more conventional multi-asset fund is unlikely to charge more than 1% overall – a lot less (in a low return environment this makes a big difference).

Why then (seemingly) do so many pension fund consultants recommend hedge funds or even worse funds of hedge funds?

No “seemingly” about it. You may as well ask why a bookmaker reccomends you bet on a horse with three legs. The answer is that it’s in their interets to do so.

- when I started managing a hedge fund in 1997 we had much higher overall market returns and more pricing anomalies

Hard to dispute that returns were higher in the 1990s and that information was not so available as today.

but very few pension funds or consultants were the slightest interested. Why are the same consultants so interested now? Answers please.

The pension mentality replies.

Herd mentality- consultants move as herds of cows, you can’t move one till they are all convinced
By the time you’ve convinced all the cows, someone else has eaten all the best grass
Hedge fund managers are the cows who left the herd to eat all the best grass
The milk we get from the cows in the herd is thin stuff as it has little nutrition and it costs us a fortune because the fat cows have creamed it!

If you are dumb enough to listen to follow consultants who are in the herd , you are not a good purchaser. If you don’t know what you’re buying, don’t buy, invest in things you do understand.

Hedge Fund-Blacklist Urging Pension Funds to Stay Away: Icahn, Cohen, Tepper and Loeb All On It (insidermonkey.com)
Teachers Union’s Hedge Fund Enemy List (blogs.wsj.com)
Smart Beta Investing Now More Attractive To Pension Funds? (valuewalk.com)
PlayPen votes for target date funds in action-packed lunch (henrytapper.com)

Posted in Bankers, brand, hedge funds, Horse racing, smelly, stock lending | Tagged Business, Credit Suisse, Funds, Hedge fund, Information and Service Providers, Investing, Pension fund, Reuters | 2 Comments

Can social media play a part in pension scheme governance?

Posted on April 17, 2013 by henry tapper

One of the requirements of the NAPF’s Pension Quality Mark is that for workplace pension schemes to meet the mark they must show some level of governance. PQM requires that SMEs (and micro employers) manage their workplace scheme..

The PQM is aimed at companies both large and small and the latter may not have the resources available to run a permanent management committee. However, in applying for the PQM, the company will have to show that, as a minimum, an annual scheme review is adequately carried out.

But what happens at “an annual scheme review”? In my experience, these meetings are unfocused as there is little that a small employer can do to influence the behaviour of the master trust or insurer of which they are but a miniscule participating employer.

In practice, after a couple of years, these meetings take place so that the PQM mark is retained , there is little ambition left to exercise pressure on the pension provider and over time the process falls into disrpute.

Looking at it the other way round, if you were at Aviva or Legal & General or Standard Life, would you be managing your strategy around the requests of your SMEs and micros?

Well you might if they acted together and exerted pressure collectively, but we know that organising small employers is as difficult as organising small shareholders. There is no collective voice.

The PQM are striving for good in Workplace Pensions and are now looking at ways to help smaller employers find mastertrusts (they call them supertrusts) which give proper governance. PQM explains the aim of the new service “PQM READYy” as

to enable employers to identify the multi-employer schemes that have good governance, low charges and clear member communications. ‘Pension Quality Mark READY’ will also help multi-employer pension schemes to demonstrate they meet an independent benchmark of good quality, and will help drive up standards in the pensions industry.

Good stuff, but that still leaves most employers (who use contract based arrangements) with little guidance as to what makes for good. And it does not solve a more fundamental question as to how the management committee exerts any control over the behaviour of the provider either of the master trust or contract-based services.

John Lawson of Aviva, worries about the lack of effective controls on a master trust board and he’s right to do so. A master trust can be set up by anyone for anyone with anyone being a trustee. John argues that for a master trust to offer itself as a workplace pension scheme, it should have a supervisory trustee from the Pension Regulator on its Board.

But we have tried “supervision” of pensions in this way before. Direct regulation of pension schemes through Government participation in trustee boards will do little but bureaucratise one of the most innovative and healthy parts of workplace pensions.

The alternative to “super” vision is “sub” vision or “bottom-up governance”. Traditionally occupational schemes (and master trusts are occupational schemes) have been influenced by the views of member nominated trustees and well established mastertrusts like the Social Housing Pension Scheme have real representation on the trustee board from MNTs.

But we are talking here of models that grew up in the 60s and 70s. Are the systems used to offer participating employers a say in the running of mastertrusts or contract based workplace pensions fit for today’s purpose?

I would argue “no”. The world has moved on- not just the pensions world either. Whereas in the past MNTs were supplied by unions, today many employers are non-unionised. Nowadays. Nowadays, if a group of employees need something to be done, they organise a Facebook page and get a campaign going. If a group of employees want something done, they can congregate using a Linkedin Group or a Google Page.

I was speaking with Paul Bucksey of BlackRock about this yesterday and he made a very good point. Where social media is likely to be important in pensions, is where employees and employers start organising themselves to put pressure on the providers of their pensions to come up with the goods.

I’ve spoken about people power in pensions and heartily agree with Paul. It is only a matter of time before the pressure among those now relying on these new DC workplace pensions builds to a point that there is organic organisation among users to collectively exert Governance.

The PQM, if it is smart, could tap into this latent pressure and do its bit to create the structures for these groups to develop. It may be that there is nothing it need do but facilitate the growth of these social media groups.

However, I suspect that leaders will emerge from the pack who will take “sub-vision” through social media forward, independently. The PQM, who do understand social media, may find their role not as instigators of change but facilitators of proper change.

The proof of the pudding will be in the eating, but don’t be surprised if in five years, the most important influence on the management of DC workplace pensions, whether under a master trust or contract, comes from social media groups organised by the people for the people.

Social media is the new voice for the small company and the disconnected employee. In my view it will become the means that their voices are heard by the pension behemoths.

“Stick or twist” for the lifecos. (henrytapper.com)
Would you take your chance on a mastertrust? (henrytapper.com)
Better-buying makes auto-enrolment work (henrytapper.com)
“What’s expensive for a pension these days?” (henrytapper.com)
Some of our insurers are missing (henrytapper.com)
Tomorrow’s problems today..the OFT on pensions (henrytapper.com)
Everybody need standards (henrytapper.com)
Give a straight red to active member discounts (henrytapper.com)
A method to chose your workplace pension scheme. (henrytapper.com)
All we are saying – give DA a chance! (henrytapper.com)

Posted in auto-enrolment, corporate governance, dc pensions, Facebook, Linkedin, social media, twitter | Tagged Aviva, BlackRock, Legal & General, pension, PQM, Small and medium enterprises, social media, Standard Life | 15 Comments

A method to chose your workplace pension scheme.

Posted on April 16, 2013 by henry tapper

I’d value your feedback on a scoring system we are developing which aims to provide employers with a method of rating one pension proposition against another.

We want it used by employers looking to establish a new workplace scheme, and those who have an existing scheme and are wondering if it needs attention (a second opinion).

Clearly this will need some clarity from Government about what makes for good (the Quality Test) .

Here are three questions to you, trusted readers

1.         Is this a fair method to assess workplace pension schemes?

2.        Can we expect employers to engage in rating a series of propositions like this?

3.         Would providers be comfortable to directly offer pensions to companies chosing in this way?

Answers on a postcard (or better still in “comments”).

Case Study

Here is how an employer rated the Providers at a recent beauty parade we ran.

Provider A

Attribute	Weighting	Out of	Score
Charge	1	30	25
Investment	2	25	20
Payroll/HR support	3	20	10
At Retirement	4	12	5
Member engagement	5	8	3
Security of proposition	6	5	5
Overall	n/a	100	68

Provider B

Attribute	Weighting	Out of	Score
Charge	1	30	20
Investment	2	25	15
Payroll/HR support	3	20	15
At Retirement	4	12	3
Member engagement	5	8	8
Security of proposition	6	5	5
Overall	n/a	100	66

NOTES

As they say in boxing, Provider A won on points, the judge marked it 68/66. This seems a simple and elegant basis for taking and documenting the decision.

Charge -overall impact of charge TER (including an assessment of impact of nominal per capita (NOW) and contribution charge (NEST)

Investment -subjective view of default plus organization of other fund options

Payroll/HR support- mainly AE related but also at implementation and ongoing (Note we assume all providers will have excellent record keeping – this is now a hygiene factor)

At Retirement –treating customers fairly – member support provided to all participants

Member engagement –effort put in to provide staff with comms –including FE

Security of proposition- how likely is the provider to be still in the game in 20 years’ time.

This is a slight development on the thinking on the six DC outcomes established in the Pension Regulator’s paper (Nov 2011).

We’ve moved on from “security of assets” to security “of proposition”, “getting higher contributions” maps onto member engagement while “administration” maps onto “Payroll/HR support”.

The essential difference between this and PQM is that this is about the scheme chosen and not about the sponsor and member covenant (the contribution structure).

———————————————————————————————————-

Variables

This system of rating is based on my personal view of the importance of each subject to my decision making; someone else might place Payroll/HR support at the top and charges less important . Others would argue that Member Engagement should be higher

Any fiduciary should be able to change the weighting order to suit their preferences but the default order should be set by the expert with conviction (in my case First Actuarial).

I don’t think that the attributes and the “out of” scores should be variables, they are hard coded into the process. Bespoking attributes and the scoring system would be an operative disaster and smacks of our having no conviction. It’s doing away with the concept of guidance.

Exceptions

During the process of choosing, a small number of employers will become enthused and want to “go further into it”. This might mean them wanting to go to a consultancy “after all” and pay fees for a second opinion or for detailed help on investments, engagement or on a full on wrap proposition .(for instance).

Exceptional companies should be given easy links to further assistance, something we think hard about at www.pensionplaypen.com.

Similarly , a system like this must point companies both to mainstream providers but also to industry specific workplace schemes such as SHPS , the Pension Trust and the Printing Industry scheme . To know what makes for good is one thing but to find and impliment “good” even more important.

In the months to come, we will build a machine that will help companies work out what makes for good and assess either an existing scheme (or workplace schemes available to them).

Output

The chief output is the overall % as this gives the personal assessment of the person managing the staging process. If a company wants to get this rating done by a number of people (a committee) then we should let them run this a number of times and save each result for them.

What if the employer can’t or won’t score?

This is a big conviction question . Should we have default positions on all providers? . The way I’d like it to work is that we ask the employer to make their own decision on “weightings” and “scores” but give each answer a “can’t choose? ” option which leads them to a default position.

(One snag with default positions is with providers (insurers) with variable responses. Our default view may be that xyz are generally the cheapest insurer but what if abc comes in with a superquote when they are normally very expensive ?)

If any “expert” can be sophisticated enough to give a bespoke rating on attributes based on the response received – well and good, but I think this is expensive and risky.

Apart from the dangers of assuming a standard charge from those with variable choices, we should not force companies to adopt a single “provider view”

Employers using this methodology should be encouraged to think for themselves and this means either requiring them to fill in certain fields or giving them the strongest of warnings that adopting the default position is not going to be as accurate a way of assessing as personal engagement.

Of course, employer specific scoring is valuable if it can be collected. It provides a “true view” of propositions (eg what the employer thinks), over a large sample of employers. This is about as good a data as you can get as to what employers really think ( a reasonable proxy for members the closer you get to 2018).

If we can collect this data at a provider level the data becomes even more valuable as it informs not just the general debate about what makes for good, but also the internal development of each provider’s proposition.

Further advantage of a self-service technology led approach.

A lot of this decision making will be imperfect. Even with a beauty parade this happens - (I once spoke with an HR manager who had the casting vote on a provider selection and chose xyz on the colour of the presenter’s tie).

We won’t have those distractions and we want to provide information to decision makers which is clear and easy to compare.

CONCLUSION

This blog is designed to encourage debate and then action. We can argue all day about this methodology but in the end we need to adopt a way of doing things. Basing our assessment on a tweaked version of tPRs six DC outcomes is a smart move as it ties in with Govt thinking but allows an “expert” to remain a thought leader with a value proposition.

The scoring system that leads to a percentage rating seems about right to me- encouraging a range of engagements from an employer (based on interest and competence) with a relatively small degree of bad outcomes (the beauty parade method produces its own).

Of course the providers will be able to see our hand and we will need to be able to justify our ratings not just to employers but to providers (and the regulator) so we are talking “robust”. That said, “robust” is something we do pretty well!

Everybody need standards (henrytapper.com)
Better-buying makes auto-enrolment work (henrytapper.com)
“What’s expensive for a pension these days?” (henrytapper.com)
Give a straight red to active member discounts (henrytapper.com)
Small business employees desire pensions (xlntelecom.co.uk)
What to do about commission (henrytapper.com)
And why these “employer duties”? (henrytapper.com)
So what’s a good DC pension – Mr Webb? (henrytapper.com)
Yesterday these were tomorrow’s problems.. (henrytapper.com)

Posted in actuaries, auto-enrolment, Change, customer service, dc pensions, First Actuarial, Payroll, pensions, Personal Accounts, social media | Tagged Employment, Financial services, Government, National Employment Savings Trust, pension, Pension Regulator, Retirement, Scheme | 15 Comments

Everybody need standards

Posted on April 13, 2013 by henry tapper

All week long I have worried about standards.

The DWP are shortly to announce what they consider the minimum standards should be for a scheme to be a “Qualifying” workplace pension.

Yesterday I spent time with Kevin Odell and other members of the Altus team discussing the need for common data standards for auto-enrolment software.

This morning I am locked in a debate with my colleagues over whether the website we’re building should “let people work it out for themselves”. Or whether we need to give default ratings on the quality of pension providers and their workplace schemes.

Steve Webb famously said that we didn’t need to legislate on the price of a can of baked beans because the market finds that price. But he didn’t add that every can has a series of disclosures on “best before” ingredients” “storage instructions” and”nutritional information” that allow you to make your purchasing decision in an informed way.

Many will buy beans on price, some on brand , a few on taste and a very few on the nutritional differences. The can I am looking at has three quality marks telling me the can is recyclable, the contents suitable for vegetarians and there’s a third with swoopy arrows that no doubt says something to bean officanados.

I buy beans with great confidence.

The same cannot be said for “pensions” (or “auto-enrolment software”). No matter how much information we put on the tin (and disclosure documents can run to 20 or more pages) what people look for is a simple statement that tells them whether the product is any good or not.

There are a few pension kitemarks that attempt to do this. The NAPF have introduced the Pension Quality Mark which tells you that the employer is making a reasonable contribution and that the charges aren’t outrageous but this is something that the employer purchases to validate their scheme – it doesn’t help employers chose a provider.

Stakeholder Pensions were required to have minimum standards which made sense in 2001 when they were introduced; those standards have changed the market (in a positive way). But they are now looking a little tired and the new minimum standards being brought in by the DWP (which we hope will be accompanied with some guidance on best practice from the Regulator) will take us a lot further to providing an answer to “what makes for good?”.

Whe it comes to the various solutions to the complexities of auto-enrolment regulations, employers are really in the dark. You can see all the demonstrations you like but until you run your first payroll through the assessment and contribution tools , you will be keeping your fingers crossed with precious little but trust in the brand you are using. Altus is right, the sooner we get common data standards - the better.

Employers need help in taking these decisions, guidance that provides them either with a method that helps them “do it themselves” or a series of default ratings that allow them to take a decision using the experienced judgement of a trusted source.

As Which did as for consumer durables, as www.moneysavingexpert.com did for financial management and as I hope to do for pensions with www.pensionplaypen.com a portal will emerge which will make it possible for the purchasing public to buy wisely.

I have worked for nearly 30 years advising people on pension purchasing decisions and whether I am talking to the CEO of a FTSE 30 or to a financial novice, their capacity to take decisions about what is “good for them” is very limited. They look for guidance, for defaults; they ask what others like them have done and they take consensus positions. The importance of defaults is enormous and the need for guidance immense.

The more complicated the concept the more important the need for clear guidance. The lessons of ISA purchasing is that you can make the purchasing decision easy and people will “self-serve”. The lesson for pension people is that if you make the purchasing decision easy, people will self-serve.

To make it easy, we need to find a new language, new technology and most of all a new attitude to the sharing of the information that people want.

For too long, pensions has been impenetrable because there have been no standards. To buy into pensions, knowledge people have needed to spend money on information that, were they buying baked beans , they could read on the packet.

Pensions aren’t baked beans. In terms of the importance of a purchasing decision, the pension you buy ranks with house purchase and career moves as the most important financial decisions you take.

Nevertheless, pension schemes do not need to be too complicated for employers to buy into schemes online. Indeed it should be possible, the standards of “for good” being in place, to make comparisons between pension schemes on value for money grounds. VFM is a composite measure of the cost for the quality of services bought and could be expressed in any number of simple ways- perhaps most easily as a % mark (the price per 100g!).

The DWP, the Pension Regulator , Altus, First Actuarial , the Pension PlayPen and all the other organisations that wants to restore confidence in pensions , need to work together over the weeks to come to make sure that the standards that are set are embraced by the 1.2 million companies that will be buying into Qualifying Workplace Pensions in the next five years.

We need to set the standards and if we do, we will start to restore confidence in pensions.

So what’s a good DC pension – Mr Webb? (henrytapper.com)
Better-buying makes auto-enrolment work (henrytapper.com)
Give a straight red to active member discounts (henrytapper.com)
“Stick or twist” for the lifecos. (henrytapper.com)
Cometh the hour;- the Regulator gets its man (henrytapper.com)
“Cynicism’s” trending on #pensions (henrytapper.com)
Tomorrow’s problems today..the OFT on pensions (henrytapper.com)
Yesterday these were tomorrow’s problems.. (henrytapper.com)
And why these “employer duties”? (henrytapper.com)
Honest! Open Government in operation! (henrytapper.com)

Posted in auto-enrolment, pension playpen, pensions, social media | Tagged Actuarial science, DWP, Education, first actuarial, pension, pension playpen, Pension Regulator, Steve Webb | 20 Comments

Whatever we do, let’s do it together

Posted on April 9, 2013 by henry tapper

I have just read a Report by Demos which ends like this

The shift in private retirement coverage from traditional pensions to individual retirement plans has made the goal of a comfortable retirement a risky, costly gamble. A fortunate few will retire wealthy while the majority watches as their contributions are gutted by high fees and their account balances plummet every time a corporation reports a losing quarter. A new retirement system, built upon guaranteed returns and lifetime payments, as provided by Guaranteed Retirement Accounts, is needed to restore the stable, secure retirement that should be the right of all those who have worked their entire lives. Meanwhile, only one part of retirement is certain: workers nearing retirement are watching their individual account balances and crossing their fingers, hoping that another market downturn doesn’t postpone their retirement for years to come, or wishing there were employers willing to hire workers that many consider too old to work.

Sounds familiar? – it isn’t. This is a report on the American 401K by a group of American commentators whose analysis of DC pensions is much the same as that of UK commentators; eg that as an individual retirement savings system, individual retirement plans don’t cut the mustard.

The report , which you can read here , confirms what we in the UK know, that unless there is an element of collective insurance, the enterprise of workplace savings will throw up some winners among the wealthy and condemn those at the bottom of the contribution ladder to 100% participation in not very much.

Collective insurance is , in its loosest sense, what defined ambition is all about. At the one end of the scale is the insurer which offers blanket terms which accept that the very best risks subsidise the poorest risks. Where the blanket terms are set at below 0.5% for every member of every company in the land, you have NEST or NOW or People’s Pension and let’s hope some enlightened “for profit” insurers,

But this is only the start of the push towards collectivism. The next target is the individual annuity which is the most hopeless way of delivering guaranteed pensions to the nation, one could imagine. Collective annuitisation , using pooled mortality and embracing economies of scale enjoyed by large DB plans and to an even greater extent the state pensions is a logical next step.

Somewhere, deep in the bowels of AonUK (or more likely India) Kevin Wesbroom is leading a research project which we hope will shed light on the options open to risk sharing between employer and employee (and perhaps the tax-payer). I can think of many such models but we need the deep actuarial research Kevin can provide to work out how fast we can move towards what DEMOS refer to as “guaranteed retirement accounts”.

Guarantees are important but they should not be purchased individually, their cost at an individual level prohibits the prospect of a decent pension. Guarantees work collectively and work through pooling of risk, of costs and ultimately they imply a pooling of intent between generations.

The work we do over the next five years will be in an environment dominated by “individual retirement accounts” and we will have to wait till we get a savings system as efficient as the Dutch collective DC approach. On average £ for £ , Euro for Euro, the Dutch system pays out 39% more than ours (Towards Tomorrow’s Investor).

The DEMOS report shows the shift to individual accounts and the damage it has already done to the elderly America

The retirement security of American families has crumbled in the past generation. Workers retiring in the next 20 years can expect to receive only 65 percent during retirement of what they made during their working years, a drop of 16 percent from their parents

Another American study which I was sent yesterday by Thomas Schildhimmer who I met at our pensions lunch is even more stark. It demonstrates that 401K in the states is 50% less effeceint that its DB counterpart. If you doubt the quality of the research read it here. The report is called “A better bang for the buck”. You can guess what lies behind the better bang!

Many people in this country laugh at David Pitt-Watson, at collective DC and at Defined Ambition. But the goal of David and of CDC and DA is to get us back to where we were, to stop the slide towards “lower for all but a few” and have the ambition to work together to make pensions “better for all”.

We should not let that new dawn fade.

Ian Curtis before the new dawn faded

The best pensions in the world (telegraph.co.uk)
Abolish the 401(k) (salon.com)
Obama takes first shot at retirement IRAs (fellowshipofminds.wordpress.com)

Posted in annuity, CDC, David Pitt-Watson, dc pensions, pension playpen, pensions, Retirement | Tagged David Pitt-Watson, Dutch, Individual retirement account, National Employment Savings Trust, pension, Retirement, Risk, United States | 4 Comments

“Stick or twist” for the lifecos.

Posted on April 1, 2013 by henry tapper

Clubs?

This is the third of three Easter blogs that address the issue of how corporate pensions are designed and paid for. In the first Give a Straight Red to Active Member Discounts , I argued that the design and cost apportionment needs to be fair to both active and deferred members of workplace schemes.

In the second blog “What’s Expensive for a pension these days?” , I replied to feedback from a provider and argued that insurers need to adopt a collective approach to their pensions book if they are to compete to provide pensions to the 1.2m employers who have yet to certify their Qualifying Workplace Pension Scheme (QWPS).

In this third blog , I’ll try to introduce some harmony (having been quite disruptive enough). I’ll suggest a simple way forward that will allow pension providers an opportunity to prosper in the post RDR auto-enrolment world.
John Lawson of Aviva made a very keen comment yesterday…

What I am saying is that 0.9% is sustainable. It isn’t particularly profitable, but it is sustainable. Is 0.48% sustainable for transient workers? Only if you move to 100% self-service and take a marginal pricing view.

Taking a marginal pricing view doesn’t necessarily mean you will make a profit. In the long run, if you don’t make a profit, you will be out of business.

Unless the 0.48% provider can build its asset pile quicker than it is spending cash on its platform, and encourage its customers to self-serve…

You can sense the conflict in John’s writing. On the one hand he can see that a collective solution at a low price might work – but it depends on customers self-serving. On the other hand he senses his duty of care to his policyholders to keep his insurance company solvent.

His life company, like all the remaining lifecos still active in the mainstream pension market, can stick or twist.

Sticking means keeping the faith with the old distribution model and hoping that it will find a way to “comply or explain” with whatever stricture comes next.

Keeping the faith despite the RDR and the FSA’s “treating customers fairly” campaign.
Keeping the faith despite the threats of “naming and shaming” from the DWP over much that has been standard practice in the advisory market .
Keeping the faith with trail commissions set up on the eve of their abolition, active member discounts, “sexycash ETVs” and the mis-certification of poor legacy schemes as QWPS.

And what does twist look like?

Twisting in the new post RDR world of auto-enrolment looks like NEST. It looks like a low AMC for everyone with a big bet that the ladders will cancel out the snakes.

Those kind of bets are tough to take, because if you are a lifeco in the UK and you just get the snakes, then you lose money and the more schemes you take on , the more money you lose and then you have to go to your shareholders for more money – which is John’s point .

When the DWP were consulting with the lifecos back in 2010, they asked them whether they wanted to play in the auto-enrolment market and they generally said “no”.

But open up the Times on Thursday last week and who has the lead advert? AEGON, who is banging the drum for Mastertrust , BLACKROCK.

Friends Life, Zurich, Standard Life, Legal & General, Aegon, Scottish Life, Scottish Widows Aviva and BlackRock are all actively promoting themselves as “AE ready” insurers.

Lined up on the other side of the road are the mastertrusts, at the front NEST with NOW and the people’s pension side by side, not far behind other non-insured mastertrusts from Bluesky, SEI , Salvus, Supertrust and the Nations Pension. Not forgetting industry wide schemes from the Pension Trust and SHPS

These mastertrusts have all twisted, they have all adopted NEST’s public service “collective” mantra and will offer blanket terms whether their customers have high staff turnover or low average salaries or multiple payrolls.

And they are offering their wares directly to employers at deep discounts to the historic prices achieved by insurers through IFAs.

Much though the lifecos would like to stick with their traditional distribution model, they cannot do so and offer sustainable pricing that competes with the 0.30- 0.50% guaranteed terms of the mastertrusts.

It is hard for the insurers to twist because they think the dealer’s against them.

It’s galling for insurers that they must compete against the tax-payer subsidised NEST and it’s galling that they must reserve for SolvencyII while mastertrusts don’t.

It is galling for the insurers that they can’t argue they have superior governance, or product structure, or investment options or “at retirement options” because the mastertrusts have been given the high ground (while the insurers have given their ground to the IFAs).

Some insurers can’t even claim they know what their clients want. How can you twist if you can’t even see your own cards?. A pensions manager at Aviva’s second largest UK client told me she had never met anyone from Aviva! All her dealings were through her IFA.

So where is harmony to be found?

Well John knows the answer ; it’s where a…

provider can build its asset pile quicker than it is spending cash on its platform, and encourage its customers to self-serve…

I can hear the grinding of John’s teeth. Over the past five years Aviva has spent £200m on platform developments which they have abandoned. This £200m write off is only 7% of the £3,200,000 they lost last year from American write offs but it’s still substantial.

But the bad news is out of the way, the shareholders have taken the pain and now it’s time to move on. John can console himself that his previous employer did little better with “corporate wrap”.

The Lifecos have had their spending spree- they cannot all go off and spend another £200m on platforms. They’ve now got to find a way to get several billion pounds onto what they’ve got.

To do that you are going to need to start competing for business against NEST and NOW and yes – one of their own who will be offering a GPP to everyone at 0.48%.

You know the answer John, it’s 100% self-service and it’s marginal pricing. It’s about giving up on yesterday’s practices. You cannot stick and twist at the same time.

100% self-service means a direct to market strategy unless we start seeing on-line search engines doing a “go compare” on a B2B basis (surely not).

Marginal pricing means taking a collective view. A collective view that across the 1.2m opportunities out there, there are as many ladders as snakes and that a general price broadly adjacent to 0.5% will be sufficient to keep you in play for a decent slice of the cake. Rather than loading transient workers with a 0.9% AMC, start thinking about “pot follows member”. Build your product so good that people want to spend their savings on retirement. Restore confidence in pensions by being a Force for Good!

Here’s the room called Harmony John. Open the door and you’ll find a number of people ready to shake your hand;- myself and David Pitt-Watson among them.

or hearts?

Give a straight red to active member discounts (henrytapper.com)
“What’s expensive for a pension these days?” (henrytapper.com)
Some of our insurers are missing (henrytapper.com)
It’s a wrap trap – but who’s been caught? (henrytapper.com)
Better-buying makes auto-enrolment work (henrytapper.com)
Time to look at VAT on pension costs (henrytapper.com)
Cometh the hour;- the Regulator gets its man (henrytapper.com)
When pensions de-mutualise (henrytapper.com)
So what’s a good DC pension – Mr Webb? (henrytapper.com)
Beeb forces closure of offshore payroll loophole (henrytapper.com)

Posted in annuity, auto-enrolment, customer service, David Pitt-Watson, dc pensions, EU Solvency II, Financial Education, Henry Tapper blog, pension playpen, pensions, Personality, Popcorn Pensions, Retail Distribution Review, Retirement, social media | Tagged Aviva, BlackRock, David Pitt-Watson, House of Fraser, John, Legal & General, National Employment Savings Trust, Standard Life | 21 Comments

“What’s expensive for a pension these days?”

Posted on March 31, 2013 by henry tapper

John Lawson – Head of Policy (Corporate Benefits) at Aviva

A reasonable question to ask and one asked by the very reasonable John Lawson of Aviva in a response to my blog “Give a straight red to active member discounts“. I quote John’s response in full as he articulates a view which most UK pension people could agree with.

“0.9% is expensive for a pension? Really? For transient workers? 0.9% is expensive compared to the retail price of a pension? Really? If you walked into a pension retailer, what would you pay for a pension? Why should leavers be subsidised by the employer? Are leavers hard done by? I don’t think so! Fundamentally disagree with this rant Henry. This is the second piece of nonsense that you have uttered this week, the first being your support for Pit-Watson’s Dutch fiction – you clearly haven’t bothered to look into Dutch schemes. Less PR and more substance please. Serious pension people want serious debate,

High time that First Actuarial started offering pensions for 0.3%, or 0.48% or even 0.9%. What’s stopping you Henry?

Why I’m sympathetic to John’s view is that it used to be mine too!

Adrian Boulding, who does a similar job to John’s at Legal & General tells the story of finding himself in a room in the seat in front of me. The then pensions minister John Denham asked whether the insurance industry could operate a stakeholder pension at 1%pa. Adrian jumped up and blurted out

”oh yes minister, we at Legal & General consider our factory gate price to be 0.5%”.

He sat down and was catapulted forward , so hard did I kick him in the backside.

As it turned out, Adrian was right and I was wrong. I claimed I had Eagle Star‘s profit margin to protect and Adrian took it in good heart – we’ve had a laugh about it since.

That was 2000, this is 2013 and the boot is on John’s rather than my foot!

I suppose I had better respond to John’s public challenge!

Taking the last para first , as he knows, my firm is not a manufacturer, we do not “offer” pensions, First Actuarial point people to where and how they can buy good workplace pension schemes for their staff.

The rates quoted are available and if anyone wants them they should get in touch with me at henry.h.tapper@firstactuarial.co.uk . You will have to be acting for your company and be ready to pay a qualifying contribution ( a minimum of 1+1% of the AE band of earnings).

The 0.3% pa rate is what a deferred member of NEST would pay for their pension. There is an extra loading from the 1.8% charge but spread over 10 or 20 let alone 30 or 40 years this is minimal.

The 0.48% rate is for the default fund of a leading provider’s GPP. This rate is guaranteed for the transient workers of retailers.

You won’t get those rates by walking into a pensions retailer but you can get them online as I hope to show to John and his colleagues in the next couple of weeks.

Is this Apples v Apples? Well we could argue deep into the night about “bells and whistles” but if I was a transient worker, I’d be more interested in a solid pension than “co-branded communications” and on-going workplace presentations. After all, I’m not planning to stay around.

0.30% and 0.48% are no longer “factory gate” prices , in the intervening 13 years they have become workplace prices (or at least prices that are freely available to any of the 1.2m employers staging workplace pensions over the next five years). We are in “collective pension land” now.

Which moves me on nicely to my second “piece of nonsense”, my support of “David Pit (sic)- Watson’s Dutch fiction”.

David Pitt-Watson is a fan of collectivism – and that’s what they do in Holland; they don’t much do company pension plans, it’s “industry-wide” with them – like another thriving pension system in Australia.

One of David’s contentions is that we in the UK pay too much for our pension funds , relative to the Dutch (the Swedish system is even more effective but let that be). He argues as a super-collectivist.

For those not familiar with Pitt-Watson’s arguments here is a summary, taken from Building the consensus for a People’s Pension in Britain

A huge proportion of our pensions disappear in fees – with charges swallowing up to 40 percent of the value of the pension.
If a typical Dutch and a typical British person save the same amount for their pension, the Dutch person can expect a 50 percent higher income in retirement.
That minor changes to our regulatory framework could boost pension returns by 39 percent.

I’ll have to see a counter-argument from John about why this shouldn’t be the case but would stand by any comments I have made in support of these assertions.

Certainly, for those transient employees, even a relative reduction in the annual charge on their money “boosts pension reserves” by up to 20% . Well it could be more than 20% for the youngsters but let that be.

Term of deferment	If AMC is 0.48% rather than 0.9%, fund is bigger by …	If AMC is 0.3% rather than 0.9%, fund is bigger by …
10 years	4.3%	6.2%
20 years	8.8%	12.8%
30 years	13.5%	19.9%

David Pitt-Watson‘s point is the British system of pension provision is less efficient and more expensive than the Dutch, many of the savings he imputes to the Dutch are achieved by collective decumulation (outside the scope of this argument but important ) but the core savings as people accumulate a pot with which to get an income are directly relevent.

As John should know if has read my many blogs on the Dutch system and on Pitt-Watson’s pioneering work, the big difference between Dutch and British DC comes down to social attitudes. The Dutch take pension outcomes very seriously and providers are scrutinised intensely by the public fiduciaries – advisers, trustees, employers and regulators all play a part.

There is a collective social conscience to keep public confidence in pensions and despite falls in pension outcomes in the past year, there is no rioting on the streets of Amsterdam. People are still getting 50% more from their DC pensions than we are getting from ours.

I am sure that any Dutch fiduciary or adviser who was accused of lacking substance and concentrating on PR for promoting lower fees for transient staff would find this extremely amusing (as I do).

John has kicked my backside. I didn’t quite fall off my chair but like Adrian Boulding, I turn round to him now, with eyebrows raised!

I’ve published the numbers, I’ve confirmed that an 0.48% guarantee on a GPP’s default is available and that NEST will offer 0.30% in deferment using its default. I’ve shown the boost that could be given to transient workers pensions by using these rates.

This is not PR – this is substance.

Is 0.9% expensive for a pension these days?

Most UK pension people may still agree with you and see 0.9% as cheap but not me. It might have been cheap in 2000 and it certainly isn’t today!

English: John Denham at Innovate ’08 (Photo credit: Wikipedia)

Posted in auto-enrolment, brand, corporate governance, customer service, David Pitt-Watson, dc pensions, fish, one pound fish, pensions, Personality, Retirement | Tagged AMC, Australia, David Pitt-Watson, Dutch, John, John Denham, Legal & General, pension | 21 Comments

Give a straight red to active member discounts

Posted on March 30, 2013 by henry tapper

To me, active member discounts are the pension equivalent of the two footed tackle (with all studs showing).

Companies that use active member discounts as part of their “Qualifying Workplace Pension Schemes” get my straight red .

I know I am not the ref - I don’t even want to be the fourth official (look what reffing did poor Bill Galvin!)

I’m the bloke in the stand who goes on 606 and says – “watch it on match of the day!”

Enough football, this blog’s a longun.. (get on with it – ed)

—————————————————————————

What are active member discounts (AMDs) and what’s wrong with them?

AMD’s reduce the charge a member pays on a pension contract while they are actively at work for a company. In the case of one large employer whose scheme has a member charge of 0.9% , the charge is reduced to 0.4%pa while the member is “actively in employment”. So far so good.

But not much good for staff of retailers where staff-turnover averages 35%; and where 75% of new joiners leave within the first two years.

Here the majority of the members of a scheme enjoy a discounted pension fee for a few months and a lifetime at the full rate.

Here are some quick calculations . The results show how much bigger the fund value would be if the member had got an AMC of 0.48% or 0.3% rather than 0.9%.

Term of deferment	If AMC is 0.48% rather than 0.9%, fund is bigger by …	If AMC is 0.3% rather than 0.9%, fund is bigger by …
10 years	4.3%	6.2%
20 years	8.8%	12.8%
30 years	13.5%	19.9%

Why use a comparison of 0.48%? – well these terms are available on all UK schemes from a reputable GPP provider and are the same for those who work for the company and those who have left. Almost all AMD’s are on GPPs

Why use a comparison of 0.30%? - this is the management charge people pay when using NEST’s default fund, an option available to any organisation contributing to a workplace scheme in the UK.

The philosophical bit

Originally, the idea of a pension was to reward someone for good works, they used to be dished out by the monarchy to pay-off favourites.

The idea of “company pensions” was an extension of this reward, company pensions have never been compulsory nor universal – until now!

Active member discounts look backwards not forward, they are of course not marketed to staff as a discount, they are promoted as if the discount, like employment , will last for ever.

In the past you might have had to work two years before qualifying for a pension - fair enough, if the pension is designed to reward the 25% who stick around.

In the past you might just have got your contributions back if you’d joined the scheme and left within two years.

But now you have to join the scheme and it is definitely not the done thing to opt-out. So what is your reward for doing so? Your contributions carry an extra charge and are worth up to 20% less when you get your money back (I won’t scare you with the figures for 40 year deferments).

Philosophically the concept of a pensions reward has been overtaken by universal coverage (auto-enrolment). There can be no place in such a system for a practice that subsidises the rate for one group of employers at the expense of another.

And that is what AMDs have come to be about. They are about hiding some pretty shabby practices.

Even where staff turnover is low, future employment is far from certain. While people have the opportunity to get the discount back by funding the old pension and the new one- few can afford it (and even fewer of the 11.5m still to enroll).

It’s a wrap trap – but who’s been caught? (henrytapper.com)
Better-buying makes auto-enrolment work (henrytapper.com)
Time is running out for auto-enrollers (theraconteur.co.uk)
UK News: Membership low for pension scheme (walesonline.co.uk)

Posted in auto-enrolment, brand, dc pensions, Fiduciary Management, pensions, Personal Accounts, Popcorn Pensions | Tagged AMC, Aviva, Friends Life, GPP, House of Fraser, pension, Pension Regulator, Scheme | 15 Comments

Because it’s an ISA doesn’t make it a bargain.

Posted on March 27, 2013 by henry tapper

ISAs are promoted by the likes of Michael Johnson as a “clean” alternative to pensions. They are simpler to understand and easy to use, but are they clean?

Here is some research from my reliable friend Dan Norman describing the “journey” of your money.

• You are recommended the ISA investment by a financial adviser, an IFA or a private bank, which takes a commission.

•The financial adviser passes it to a funds distribution platform (such as Cofunds) which may add a variety of charges, including initial charges, switch fees, trading fees, and tax wrapper (ISA) fees.

•The funds distribution platform uses outsourced technology, for which it is charged a fee.

•The funds distribution platform passes the investment to a transfer agent, which charges fees for out-of-pocket expenses, maintaining the account, updating the register of investors and passing the subscription on to the fund manager.

•The fund manager places the investment in safekeeping with a custodian bank which charges an annual ad valorem fee plus fixed fees for settlement of transactions in the underlying assets, plus out-of-pocket expenses.

•The fund manager appoints an independent fund accountant to value the investments held in the portfolio. It charges an ad valorem fee on the value of the assets under management plus transaction charges and sundry charges for audit and tax reporting.

•Interactions between fund managers, transfer agents and fund distributors (such as IFAs) are routed via electronic message services such as EMX, Calastone, FundSettle, Vestima and SWIFT, which levy set-up fees and per message charges.

•The investment process and the participants are monitored and reported on by the depositary bank or trustee – often the same organization as the custodian bank – which charges an annual fee.

•At this point, the promoter of the fund may take an initial charge from the client for the investment. This can be a substantial amount: 5% or more is not uncommon. Promoters also levy exit charges for withdrawals from the fund.

•The fund manager takes the newly injected cash to invest in the market. The manager charges an annual percentage fee on assets under management and, possibly, a performance fee.

•The fund manager places a deal in the market to invest the new cash. This may involve paying a spread if the trade is placed directly in the market, or a commission to a broker-dealer.

•If the trade is subject to tax (like stamp duty on equity trades) then this is taken from the fund via an adjustment to the trade consideration.

•The broker-dealer may make a payment back to the fund manager as an inducement to trade with them. This is called “soft commission.”

•The fund manager confirms the trade data with the broker-dealer through a trade matching service, such as those supplied by Omgeo or SWIFT, which levy further fees.

•Settlement instructions are exchanged between the custodian banks to the buyer and the seller of the asset, and cash is exchanged for securities via electronic book entries at a central securities depository (CSD), which charges a settlement fee.

•Cash is paid and received via accounts maintained at the central banks by the custodian banks, which charge settlement fees.

•And we haven’t yet covered FX fees, securities lending, a Fund of Fund structure….

ISAs may look simple but so does an iphone. Neither are cheap!

There are some simple rules you can follow to keep yourself out of trouble. Trust your instincts. If you do not understand, ask and if you still do not understand, do not invest.

The simpler the product the cheaper. As we are constantly advised, cheaper is not necessarily best but long supply chains are rarely in the consumer’s interests.

If you discovered that you could buy Nestle gold blend in Tesco’s finest coffee (you can’t ) you’d pay the lower price per 100g. Unless you wanted to wave the Nestle jar around in the kitchen. you’d probably go for the Tesco own-brand product as you get the same coffee.

Much the same can be said for the prescription of generic drugs by GPs.

Consumers are savvy, they understand supply chains and will chose the short ones as a route to sustainable value.

This does not rule out spending money on flim-flam. Most people will pay a little extra to go to a hairdresser who is pleasant ; similarly the comfort of a trusted intermediary is a considered.

But before pressing any buttons , we need to separate what we are paying for comfort and whether this is an acceptable price.

Do not be brow-beaten. In this new web enabled world, you have the choice whose service you use.

Compare the attitude of the most famous funds platform, expressed in an e-mail to one of their clients yesterday.

Currently it is not possible to invest into ‘clean’ funds within the Vantage Service as at present there are no requirements for fund supermarkets to offer such funds. Until the outcome of the FSA’s decision making process surrounding how the Retail Distribution Review (RDR) will affect fund supermarkets has been finalised, we have no plans to offer these or change our current charging structure.

Any required changes to platforms (such as Vantage) have not yet been finalised and we are still in a consultation period with the FSA. We expect a decision from the FSA later in the Spring. Any new platform rules confirmed will then be expected to be introduced from 31st December 2013. If we do need to make changes our clients will be the first to know.

With this (from Citywire)

Informed Choice has unveiled the charging structure for its execution-only platform, IC Direct, which will be powered by Fidelity FundsNetwork.

The platform will charge a flat fee of 0.45% on assets per annum.

A £45 annual account fee will apply after the first two years on each new account and there are no initial or switching charges.

IC Direct only offers clean share classes and currently has 425 funds from 18 fund managers … The firm expects to have around 2,900 funds from 80 fund managers by the third quarter of 2013.

Martin Bamford …., managing director of Informed Choice, said: ‘We made the decision to adopt clean fund pricing from day one after our market research told us investors are disillusioned with the smoke and mirrors used by existing platform pricing structures.

‘This is an important step forward for the platform sector in terms of transparency, ahead of the regulator forcing existing discount brokers and direct to consumer platforms to clean up their pricing terms.’

I think I know which approach I prefer…

In the customer’s shoes; Dan Norman on our fund fiduciaries. (henrytapper.com)
Is this what your savings are paying for? (henrytapper.com)
It’s a wrap trap – but who’s been caught? (henrytapper.com)
Which are the best Isa fund supermarkets? (telegraph.co.uk)
Isa price war hopes as trusts slash costs (telegraph.co.uk)
Q&A: Should I switch my Child Trust Fund to a Junior Isa? (telegraph.co.uk)
‘New tax will change fund broker charges’ (telegraph.co.uk)
Fund Managers: Really, Really Bad at What They Do (dailyfinance.com)
Five ways to cut the cost of investing (telegraph.co.uk)

Posted in iphone, ISA, Popcorn Pensions | Tagged Calastone, Dan Norman, Financial Services Authority, FSA, Individual Savings Account, ISA, Mutual fund fees and expenses, Tesco | Leave a comment

Better-buying makes auto-enrolment work

Posted on March 25, 2013 by henry tapper

We are seeing a profound change in the way people provide for their retirement.

The Thatcherite experiment of personal pensions has been discarded and we have returned to “works pensions” as our way of supplementing our state benefits. Meanwhile two of the three defined benefit schemes - the occupational and state second pensions are being run down and after 2016 the only defined benefits we will accrue will be in the basic state pension or in Government sponsored public sector schemes.

While the Basic State Pension‘s long-term decline has been arrested in the short-term by the triple-lock (and in the medium term by its upgrading), the best part of the slack will be taken up by workplace savings schemes.

At first glance, workplace pensions set up today look little different from the personal and occupational money purchase pensions of the past thirty years, the new workplace schemes are likely to be very much more effective in replacing pre with post retirement incomes (the replacement ratio).

This is because they will be better funded, better invested , better decumulated, better administered and offer considerably better value for money to those using them – the pension consumer.

At the heart of this positive evolution is the change in distribution brought about by auto-enrolment and by the retail distribution.

To understand this statement you need to understand why “pensions” were the last thing on the mind of “pension advisers” particularly most of those working in the retail sector

The abolition of commissions brought about by the RDR has been long-flagged but the pressure on advisers to restrict charges on member’s pensions to services that benefit the member hasn’t. Without the prospect of consultancy charging, the traditional retail advisory model that enabled employers to get a free ride and loaded charges on members is not just broken - but disappears.

The retail financial adviser has always struggled with the concept of saving to buy a pension. Over the years I have seen complicated pensions that showed how EPPs and SSAS could be used as a tax-effecient financing vehicle for SMEs, I’ve seen SIPPs touted as a means for hiding CGT on second properties, I’ve seen pension mortgages and recently salary sacrifice and even pension liberation schemes. All variants on a theme that denies the central purpose of a pension savings plan – to replace income lost by retiring from work.

Because pension saving was dressed up as a financing or tax-avoidance tool, issues to do with pension outcomes - investment, annuitisation and value for money were downplayed. Indeed a smokescreen was created that allowed advisers to take huge proportions of the early contributions made into these plans as commissions.

In this , the insurance companies were complicit. Eager for distribution, insurers aided and abetted advisers in their endeavours by offering ever more complex products with complex charging structures to pay more and more commission.

Even with the simplification brought about by stakeholder pensions, attention has been diverted from the matter in hand. Flexible benefits and the corporate wrap have continued to dress up pensions as wealth creation . The promise of “Wealth at work” has disguised the paucity of the pension outcomes when work finishes.

Now the retail advisory community has fragmented. Many have left to do other things, some are sitting on a legacy book which they hope will provide a long tail of trail commission to support a life of leisure while others have seen yet another opportunity to advise around the fringe of pensions by selling compliance tools that will keep employers on the right side of the Pensions Regulator. Recent announcements from insurers that they are withdrawing their corporate wrap products suggest that the flex project is grinding to a halt while announcements from payroll providers such as SAGE and EARNIE provide a threat to the middleware on which many corporate IFAs are relying to make money from auto-enrolment.

The harsh but brilliant truth is that for the first time since I started advising in 1984, there is an opportunity for even the smallest company to purchase a company pension at a reasonable cost without the need for expensive advice. I talk of NEST but also of NOW and PEOPLE’s PENSION, BLUESKY, PENSION TRUST, SHPS and SUPERTRUST and if I have anything to do with it L & G and other enlightened insurers.

All these organisations are offering the business community, access to a bundled DC savings plan with good investment options at or around half the price of the stakeholder pension (price cap).

What is more, these organisations will contract directly with the employer without the need for an intermediary. I spoke last week with an employer who had set up a commission based workplace scheme for some thousands of employers. In eight months , they are yet to meet the insurer which provides the scheme. An over-reliance on intermediaries is a recipe for disaster all round.

I am pleased to say that examples such as the one above are becoming the exception rather than the rule.

There is a long way to go, there are still many legacy pension schemes which are not working which we will need to upgrade. But I firmly believe that by the time we reach the end of auto-enrolment staging in 2017, not only the 11.5m new entrants but the vat majority of the 1om people currently in workplace DC plans , will be getting a much better deal than ever they had before.

I say this because we have now a way to get directly to providers with advisers needing to offer only the lightest of touch in terms of guidance around what to do and how to do it. New technology can accelerate the process. Costs of staging will tumble, the quality of corporate decision making will improve but best of all, there will be better outcomes for members retiring using these new plans.

It’s a wrap trap – but who’s been caught? (henrytapper.com)
What to do about commission (henrytapper.com)
Tescos - Karen Wake helps- quite a lot! (henrytapper.com)
Who’ll pay the price for an auto-enrolment train crash? (henrytapper.com)
This is no country for old women (henrytapper.com)
Bill – get some DC resource into the Regulator now! (henrytapper.com)
So what’s a good DC pension – Mr Webb? (henrytapper.com)
Pension agnostic? (henrytapper.com)
NEST Insight; what the 11m+ “unpensioned” think. (henrytapper.com)
Becalmed in the middle of the lost decade! (henrytapper.com)

Posted in auto-enrolment, corporate governance, dc pensions, First Actuarial, Henry Tapper blog, pensions, steve webb, target date funds | Tagged Insurance, National Employment Savings Trust, pension, Pension Regulator, Self-invested personal pension, SHPS, Small and medium enterprises, UK State Pension | 15 Comments

In the customer’s shoes; Dan Norman on our fund fiduciaries.

Posted on March 24, 2013 by henry tapper

Take a look at this chart provided me yesterday by the excellent Dan Norman

This is what it says

The percentage of your funds used to provide management and distribution fees by fund managers rose between 1994 and 2010 from 1.3 to 1.5%.
Although operating costs fell between 1994 and 2000, they have risen against since then and are now climbing back to 1994 levels
Put together, these fees now reduce the average fund by 2% per year
With funds growing from €47bn to €1,105 bn over the period, the increase in nominal returns to fund managers has been staggering
In a low inflation/low growth environment where the total gross return can’t be expected to exceed 6%, fees now take in excess of 30% of the total return.

Regular readers of this blog will know that an actively traded equity fund that doesn’t pay much attention to operating costs can easily run up three times the operating costs quoted by Lipper (above).

We have seen funds where the management and distribution costs exceed 1.5% and incur operating costs which together mean 3% pa is lost from the return. Now half the return is now lost to charges.

Dan likes to quote the Economist

“Imagine a business in which other people hand you their money to look after and pay you handsomely for doing so. Even better, your fees go up every year, even if you are hopeless at the job.”

And this is the way the money goes! Thanks again to Dan and TCF investments.

•Manufacturing costs - unnecessarily complicated instruments. e.g. derivative instruments.

•Trading costs – huge variety of banks, investment banks, exchanges and broker-dealers intermediate transactions, adding layers of costs.

•Management costs – wealth managers have devised a variety of intermediary vehicles through which the investors they advise can approach the equity and debt markets. Investment trusts, mutual funds, exchange traded funds and hedge funds – all create additional administrative costs, notably in fund administration, fund accounting and transfer agency.

•Distribution costs – commissions, rebates, subsidies, access fees, marketing allowances.

•Advisers – legal, tax, asset, investment, admin.

•Infrastructure and wrapper costs.

•Infrastructure costs (again) – complete lack of standardisation. Transfer agency is one facet of complexity cost. Though transfer agents administer purchases, sales and switches between pooled funds on behalf of investors, they are instructed mainly by fund distributors.

•Servicing costs – safekeeping or safe custody, is carried out by custodian banks which levy ad valorem charges on portfolios plus fees for “servicing” assets, in the sense of settling transactions, collecting entitlements such as dividends and rights, and exercising voting rights.

•Infrastructure costs (yet again) – Central Securities Depositories maintain complete digital records of who owns what, and charge fees for maintaining accounts. The CSDs also settle exchanges of cash and securities, usually through accounts maintained by banks at the central bank, for which they charge settlement fees. Increasingly, trades between banks, investment banks and broker-dealers are also intermediated and netted through central counterparty clearing houses (CCPs), which eliminate counter-party risk but impose further costs in terms of collateralisation and transaction fees.

•Simplification costs – Government trying to help. PEPs to ISA, CTF to Junior ISAs. But just adds more complexity – how many pension regimes??

•226, GMP, s32, AVC, FSAVC, PP, APP, Stakeholder, CIMP, COMP, underpin, pre 86, SIPP, SSAS, SERPs, OAP, S2P, NEST, DB, DC, GPP, Helicopter, Bicycle, Wibble

Well that’s the kind of small print I actually wanted to read.

So while the rest of western industry has been using new technology to cut costs and taking wage and bonus cuts, the financial services has seen operating costs maintained at 1994 levels, management and distribution charges shooting through the roof and the regulators standing by wringing their hands.

Fortunately things are changing. When hedge fund managers can offer a no-win no-fee service to pension funds based on them taking 50% of the funds costs out, you know that the fat has got to ridiculous proportions. The ABI have said it and now the IMA – under Daniel Godfrey is saying it.

The fund management industry has to exercise its fiduciary duty to treat its customers fairly

And that goes for platform and advisory fees from the so-called vertically integrated advisers too. From Hargreaves Lansdowne to Mercer, advisers who take their profits implicitly from assets under their control are going to have shape up.

Gregg McClymont has been quite explicit. It is now Labour Party Policy that if the fund and platform managers do not put their houses in order, a new Labour Government will.

Brave people like Dan Norman, David Pitt-Watson, Terry Smith, Alan Miller, Emmy Labovitch Con Keating (and many more) have extricated themselves from the conflicts of working within the funds industry and we are now finding out what we suspected all along.

Those swanky City offices , fancy cars and fancy salaries, those corporate boxes at Wimbledon and Twickenham were not paid for from thin air. The ridiculous excesses of the fund management industry that are still going strong, have to stop. Operational costs must be declared and reduced. Distribution fees and management charges need to be curbed.

For too long , those who have lived off the fat – the journalists and the trade bodies have stood on the sidelines. Now ,at last, organisations like the NAPF are joining in. A few journalists are being brave enough to bite the hands that fed their sales and marketing teams.

Most of all, those charged with fiduciary responsibilities, including the managers themselves must, as Dan puts it “put themselves in their customers shoes” and start treating them fairly,

Is this what your savings are paying for? (henrytapper.com)
No win no fee – one way to clean up asset management (henrytapper.com)
Who’s been sleeping in my bed? Shocking stuff on stock lending. (henrytapper.com)
The dam is full – manage the sluices (henrytapper.com)
Five ways to cut the cost of investing (telegraph.co.uk)
Isa investing: Why more funds will meet my golden rule (telegraph.co.uk)
DC4Good; ABdc and the Pension Trust get it. (henrytapper.com)
Diagnosing the real cost of DC (henrytapper.com)

Posted in actuaries, auto-enrolment, corporate governance, David Pitt-Watson, dc pensions, de-risking, Financial Education, First Actuarial, pension playpen, pensions | Tagged Asset management, Dan Norman, Funds, Gregg McClymont, Individual Savings Account, Investment management, Mutual fund fees and expenses | 4 Comments

Beeb forces closure of offshore payroll loophole

Posted on March 19, 2013 by henry tapper

Last November I wrote three articles about ISS and other offshore payroll companies. You can read them by pressing these three links.

I argued that agency workers were being tricked out of penssion contributions under the new Pension Reforms.

A previous Government had created a loophole through which tens of thousands of contract workers - typically teachers were falling. In return for a marginally higher take home, contractors who elected to be paid from that employment hub – Sark (population a man and a goat) got a VAT and national insurance break but no pension entitlement under the new pension reforms till 2017.

It was the BBC who brought the issue to the public note.

The pension implications were not explored in their report but other reductions in UK benefit entitlements were. A good lawyer , Helen Powell looked into the pensions issues for me and confirmed what I had suspected, that those 24,000 teachers supposedly working for ISS, had tricked themselves out of up to five years of pension contributions to which they were entitled.

I was pleased to read this weekend, that all is not lost.

Three months later and it looks as if this prayer was answered

A tax loophole that allows firms to dodge £100m a year in National Insurance will be closed under a new scheme targeting offshore payroll services.

Chief Secretary to the Treasury Danny Alexander said the loophole allowed UK companies to avoid paying tax for thousands of workers.

Mr Alexander said British firms with British staff must pay British taxes.

He announced the move in a speech to the Scottish Lib Dem conference.

It is not just about the tax we get in, it is also the case that many employees will not know they are paid in this way”

Mr Alexander said around 100,000 employees – mostly teachers, nurses and oil and gas workers – were believed to be paid through offshore payroll services set up in tax havens such as Jersey and Guernsey and could be ineligible for statutory sick pay, but completely unaware of that status.

He said he was alerted to the loophole by one such worker who approached him at Inverness Airport. But he insisted he found it was already under investigation by officials.

“It is not just about the tax we get in, it is also the case that many employees will not know they are paid in this way,” he told BBC Radio 4′s Today programme.

Mr Alexander said the move had a direct consequence for workers.

“If their employer is not paying employers’ National Insurance, unbeknownst to them they may not then be entitled to statutory maternity pay if they become pregnant, they may not be entitled to statutory sick pay if they fall ill,” he said.

“This is not just something which has direct consequences to the Exchequer, costing us all hundreds of millions of pounds, it is also something that has a direct consequence for the workers concerned and that why it is so important we are taking this action.”

Patrick Stevens, tax partner at Ernst & Young, told BBC News the loophole needed to be closed.

He said: “This originates from the situation where British companies are sending their employees overseas, so if they’re working full-time overseas, it’s probably perfectly fair that they are not subjected to UK tax.

“But in some cases people are taking advantage of a bit of a loophole where British workers are being got into the same situation but this needs to be closed down.

“It’s the special rule around agency workers that I understand is allowing people to get into this loophole and take advantage of something that was really only meant for people working overseas.”

Again the article does not specifically mention but it looks pretty certain that if the loophole is closed, these teachers and other professionals will get their entitlement pretty much from day one. The onshore umbrella payroll companies are among the first to auto-enroll as they have huge numbers of UK workers on their books.

The news is not just good for the contractors, it’s good for the DWP andTreasury – who get their full share of National Insurace and VAT revenues.That’s good news for the rest of us who have been picking up the tab.

It is also good news for pension providers who are understandably nervous about receiving large amounts of cash from an offshore bank account (think money laundering). Indeed NEST have simply refused to take the money, so these offshore workers would not have been eligible for NEST.

Once again, the Beeb , in a very low-key way, have won an important battle. We are quick to launch attacks against the BBC but slow to acknowledge the quality of the Beeb’s journalism and its positive impact.

A good news story all round (except for the man and the goat on Sark).

£100m NI tax loophole to be closed (bbc.co.uk)
Chancellor to close tax loophole (standard.co.uk)
Britain to close offshore payroll tax loophole (worldbulletin.net)
No sick pay, no maternity pay: Chancellor targets employers’ tax loophole that damages teachers’ and nurses’ rights (independent.co.uk)
Budget 2013: £100m National Insurance tax loophole to be plugged (guardian.co.uk)
Time to look at VAT on pension costs (henrytapper.com)
Guernsey tax scheme costing the UK £100 million a year shut down (taxresearch.org.uk)
Is the Sark PAYE lark Guernsey’s fault? (taxresearch.org.uk)

Posted in auto-enrolment, dc pensions, Henry Tapper blog, Jersey, pensions, Retirement, smelly | Tagged Alexander, BBC, BBC Radio 4, Chief Secretary to the Treasury, Danny Alexander, Inverness Airport, National Insurance, Tax | 1 Comment

What to do about commission

Posted on March 16, 2013 by henry tapper

Debbie O’ Donovan who blogs as DOD has written a definitive comment on commission and the shameful shenanigans of Q4 2012 which saw advisory firms filling their boots at the expense of the members of workplace pension schemes.

Many years ago a good friend, who at the time worked as a financial adviser, gave me a piece of advice: “Always pay fees for advice, never opt for commission – fees are ultimately a fraction of the cost of commission.”

Last year we saw a tremendous flurry of activity before commission payments on pension plans to corporate advisers was scrapped on 31 December. Many employers were convinced to switch pension providers so their adviser could have a last gasp grab at a hefty commission.

This dreadful practice often found employers, and certainly their staff, unaware of the true costs of their scheme to the extent to which some even believed they were getting their scheme for free. It is especially damaging because commissions are taken out of contributions, greatly eroding employees’ long-term investments.

Any pension schemes put in place under the old commission system now have an added burden to bear (and fear).
Contracts signed before 31 December 2012 have until May this year to implement them. Advisers who put them in could well be loath to recommend any changes that will stop ongoing (trail) commissions being paid out. Many in the industry are, consequently, concerned that these schemes and their investment funds choices will grow old and dated (see also Governance vacuum for contract-based pension schemes).

A good place to start is by having a good pensions governance committee at your organisation so the full burden does not just land on HR.

Be aware, and be wary – this is a potential misselling scandal, especially if employers auto-enrol staff into a scheme that is not (on an ongoing basis) the best it could be.

But there is something very interesting going on with this story. The commissions that are paid by insurers to advisers for pensions business are effectively an advance against future service. They are a financing arrangement where the insurers take a bet on the persistency on their fees and have no recourse to the adviser if they can’t recover this advance. Advisers who take pension commissions are in a no-lose situation.

By contrast, advisers who make their fees from the sales of funds outside of pension wrappers do not get financed. They get paid “on the drip” and if the tap is turned off, so does their revenue. Which is why the following story is so astonishing.

The Financial Services Authority is planning to ban rebates on legacy business which are paid by fund groups to platforms from 2016, in a move which will shake up the platform industry and force providers to charge groups for additional services.

Investment Week can reveal the FSA intends to stop platforms retaining rebates from fund groups on legacy business, and is giving them a two-year grace period to migrate clients on to new fee arrangements.

The new rules will be revealed officially in the near future, most likely in the upcoming platform paper. They will kick in from April 2014 when the new platform rules come into force, meaning groups will have to stop taking fund manager rebates on legacy business from April 2016.

So while the pension advisers are invulnerable, the rest have to justify their fees year after year. Small wonder that people distrust pensions.

The point that is made by DOD is , in the context of non-pensioned platform fees, doubly valid. The behaviour of advisers in the second half of 2012 was blatant and shameless.

The reality is this. Companies that bought commission loaded workplace pensions in 2012 and are due to put their members into them in 2013 are doing it on the cheap.

The impact of all this commission paid out to advisers won’t be felt till those joining pension schemes retire, by which time any accountability will be gone.

This will not be sorted by advisers holding up their hands, nor employers holding up their hands, it will be sorted by consumers working things out for themselves. But will they?

Presumably the FSA and the Pension Regulator trust that consumers entering into workplace pensions set up by employers on this basis know that they will be paying the advisers out of their funds. Presumably staff are happy about this.

Or are they paying for the commission like they paid for PPI and pension transfers and swaps; because some clever lawyer who wrote the small print convinced the vendors that they were perfectly entitled to big fat margins for very little risk?

DOD is right to point this out now, the OFT should be looking into this and asking not just how it happened but why it happened. They should look into the cost of the churning of pensions not just in terms of charges but in terms of the frustration that it is creating among pension experts and the Great British Public alike.

It’s a wrap trap – but who’s been caught? (henrytapper.com)
Cometh the hour;- the Regulator gets its man (henrytapper.com)
OFT rattles pension consultant’s cage -shock! (henrytapper.com)
Yesterday these were tomorrow’s problems.. (henrytapper.com)
So what’s a good DC pension – Mr Webb? (henrytapper.com)
Pension agnostic? (henrytapper.com)
Tomorrow’s problems today..the OFT on pensions (henrytapper.com)
Tescos - Karen Wake helps- quite a lot! (henrytapper.com)
When pensions de-mutualise (henrytapper.com)

Posted in auto-enrolment, corporate governance, dc pensions, pensions, Retirement | 9 Comments

Cometh the hour;- the Regulator gets its man

Posted on March 16, 2013 by henry tapper

In a recent blog, I bewailed lack of leadership in the Pension Regulator’s Defined Contribution team.

And it was a more general lament for the paucity of knowledge and vision throughout UK financial regulation - the FSA have offered little leadership either.

I argued that unless someone of substance was found quickly, the Pension Regulator would be letting the DWP and in particular Steve Webb down , as they looked to build on the great start to auto-enrolment.

I’m really pleased that they have chosen as their new Executive Director for DC – Andrew Warwick-Thompson. Andrew is precisely the person who the Regulator should have appointed. He really knows his stuff, is strong and usually right.

Andrew was one of a group of exceptional consultants at Hewitt around the turn of the last century (fin de siecle pension gurus?). He came through the ranks alongside Steve Mingle, Andy Cox, Kevin Wesbroom, Ann Freeman and Raj Mody. He married Gillian, one of the best DC investment consultants Bacon and Woodrow I have known.

Andrew qualified as a lawyer in the late eighties and his forte has always been governance. He was one of the first to see how insurance platforms could be used to reduce fund management fees, reduce risks and deliver open-architecture to occupational pension schemes.

One story which I heard from him and from others concerns the Equitable Life. It demonstrates what kind of a man he is and why he, above all others, is right for the job.

Andrew had discovered well in advance of the eventual House of Lords ruling , that the guarantees offered by Equitable Life were extensive enough that , were interest and annuity rates to fall, they could make the Society insolvent.

His firm had advised many of its clients to invest in Equitable Life and Andrew was determined to bring the threat to policyholders and to his own firm’s reputation to the attention of his colleagues. He wrote of the matter to his colleagues in the company newsletter.

News of this article was passed to the Society’s Chief Actuary, Roy Ransome, principal architect of what proved to be Equitable’s demise. Instead of answering the issues that Andrew raised, Ransome slapped a personal writ on Andrew. Andrew, for a short time suffered a lot of reputational damage at his firm as a result.

Even today, the bravery of Andrew’s stance and indeed right he was, has yet to be fully acknowledged.

Amidst all the waffle of the press release, Bill Galvin hits the button when he links Andrew’s appointment to the introduction of auto-enrolment. There is much to do upgrading existing trust and contract based workplace savings plans and Andrew has the insight and strength of character to cut to the chase (as he did with the Equitable).

If this finds its way onto your desktop Andrew, well done! Here is my agenda for you

Establish what makes for a good workplace pension saving plan
Help companies with finding such a plan
Do all that you can to help companies integrate their plan as “business as usual”.

Regular readers of this blog will know those are the issues that bother me most and those of First Actuarial and the recently incorporated Pension PlayPen.

The group of consultants Andrew was a part of ten or fifteen years ago have continued to influence the way pensions in this company are delivered. It is good to see Andrew being given such a crucial role at such a crucial time and we should do all we can to ensure that his work is effective and returns pensions to the respect in the public eye they once enjoyed.

The problem with actuaries (henrytapper.com)
Cobblers shoes (henrytapper.com)
Equitable pensioners ‘still waiting for justice’ (telegraph.co.uk)
People get ready! (henrytapper.com)
Lord make AE simple – but not yet! (henrytapper.com)
Actuarial qualifications no longer necessary (actuarialtalk.wordpress.com)

Posted in auto-enrolment, dc pensions, FSA, NEST, pension playpen, pensions, Personality, Retail Distribution Review | 9 Comments

“We don’t know what we’re doing”!

Posted on June 16, 2013 by henry tapper

Greg McClymont at election count May 2009 (Photo credit: Wikipedia)

To the average fan it is not the fans or player or clubs that bring the game into disrepute it is the referee – hence the chants the politest of which is “you don’t know what you’re doing”.

But it’s never that simple. What the crowd can see from the stands is different from what the ref sees close up and though we moan, we know that football has proper rules which are well enforced and we get (with the odd aberration) fair results.

In an environment where we are sure of the fundamentals we can set up our own rules to make sure that our business is carried out properly.

But when we don’t know the rules of the game, or when we sense the players are running rings down the ref, we walk away from the game feeling cheated (as is the match had been fixed).

So I sat down at the beginning of this year with this text-book advice staring at me .

Write goals that actually get done. SMART goals are goals that are specific, measurable, achievable, realistic, and time-bound.

Could I be smart or did I have to be as dumb as I’d been for the past twenty years? My conclusion was that I could be as smart as I liked but unless I knew what I was doing, setting these goals was a waste of time. I am setting out to get SMART.

In the autumn, the Government will begin a consultation on what workplace pensions will look like over the remaining years of the AE staging period and beyond.

While this consultation is overtly about a cap on charges for a default fund, it is hard to see how it cannot touch upon “the minimum standards” required for the services offered within the cap; More fundamentally the consultation needs to confirm what services fall within the charge cap and what do not.

The fundamental asymmetry of information that has meant that all attempts so far to control the behaviour of financial services company in the workplace have failed is this.

While the practitioners – broadly speaking those who design,price, market and distribute workplace pensions know what is going on, the Regulators don’t.

In short, they have not been SMART because others have been smarter.

This is why the OFT had to be bought in at the behest of Gregg McClymont and why Steve Webb has had to be bounced into market intervention. As Webb has said “it seemed inconceivable to me, when I took this job on, that there were not rules governing what a workplace pension should look like”.

Well of course there were rules of a sort. Stakeholder pensions were governed by a charge cap of 1%pa on the fund but it was never quite clear what the specifics of that charge included and many Stakeholder pensions have for long operated with total costs to members well in excess of 1%.

FOR EXAMPLE

It is only now, with the help of Morningstar and True and Fair that the man in the street can establish what the costs on his fund really are and (using the advanced button) the total cost of the service provided. If he is using a multi-manager fund of hedge funds on a funds platform he may well be paying 4% pa for the privilege which in a low inflation environment where the gross performance target is inflation +4%, could mean that on-target performance could disguise zero growth on the fund.

Yet this fund might declare no more than a 0.5% annual management charge.

We have got used to being given this kind of misinformation and because the managers and their trade bodies have got away with it, we, both individually and collectively, have been duped. We don’t know how we’ve been duped but when we compare the outcomes of our savings plans with the performance figures we are handed and the projections we got when we started out, we experience anger which leads to the fury of many consumers whenever pensions are mentioned.

Thankfully, we have at last a conscientious pension minister, an inquisitive shadow pension minister and a number of consumer champions within the funds industry prepared to use their personal time and resources to educate us individually and collectively about what is really going on.

So at last the “asymmetry of information” is looking like it is going to change to a point that those who regulate workplace pensions know as much as those who operate ,market and distribute them.

This has been and will be a very painful process since it involves admissions on both sides of deficiencies. The OFT report will (I hope) make it clear that the mess that pensions has got itself in has been as much a matter of poor governance as of provider malpractice and no-one on our side of the fence will find it comfortable reading.

However it will form part of the process of healing that may eventually lead to us being proud of our pension system again.

We must set minimum standards that are not specific, measurable, achievable, realistic, and time-bound.

But to do so , we need to understand what these adjectives mean in the

English: Steve Webb MP makes a speech at the Liberal Democrat Autumn conference 2008. (Photo credit: Wikipedia)

context of the pension reforms we have embarked upon.

That means we must be honest and open about our affairs in a way that we have not been , till now.

“Fit lean pension machines” – an uncomfortable prospect? (henrytapper.com)
Club Quango at #WPL13 (henrytapper.com)
Risk-sharing starts with cost-sharing (henrytapper.com)
Not what’s in the pot but what it buys – Pension RTI (henrytapper.com)
A time for action not tears! (henrytapper.com)
So what’s new in pension reform? (henrytapper.com)
A message to 1.2m employers who aren’t reading (yet)! (henrytapper.com)
What a charge cap would mean for insurers (henrytapper.com)

Posted in actuaries, advice gap, auto-enrolment | Tagged Funds, Government, Gregg McClymont, Morningstar, Office of Fair Trading, OFT, pension, Steve Webb | 1 Comment

My mother is a donut

Posted on June 15, 2013 by henry tapper

My mother is someone who I have admiration for.

This afternoon we went to walk Rosa the dog ; but when we got out of the car she discovered she was in her house slippers.

Rather than abort the walk she put a pair of old socks over her slippers and we walked for a couple of hours around wingreen and down to Berwick St John and back up to the old ox drove that meanders along to Salisbury.

This was my mother’s second walk of the day and the shorter one. She regularly walks ten miles a day.

She is 81.

There is a gentle way of growing old that makes me yearn to be her age, have her tolerance and to see the funny side of everything.

Posted in doctors | Tagged Salisbury, Berwick St John, Doughnut, Mother's Day, Dunkin Donuts, Walking, National Doughnut Day, Baking | 2 Comments

A message to 1.2m employers who aren’t reading (yet)!

Posted on June 15, 2013 by henry tapper

All week I’ve heard criticism of Steve Webb for telling employers they do not need advice to auto-enroll. The other side to that coin is that the DWP believe that employers can do it themselves.

It was another week when an employer outed themselves as a £1m + spender on staging auto-enrolment. Leslie Williams went public on the webpages of Professional Pensions blaming the failure of her payroll provider (Ceridian) to provide her with the support she needed. Where the money went isn’t clear but the word Mercer appears several times in the article. Whitbread join an unhappy list of employers including our own Lloyds Banking Group who accept they are overrunning the DWP estimate for large scheme staging (£4,700) by a seven figure sum.

The conversations I am having with the SME payrolls are not as encouraging as I had hoped to be having my now. The initial enthusiasm that they would be ready with solutions for the first big hump or stagings early next year has been replaced with talk of restricted budgets and complaints of planning blight caused by the ongoing consultation on AE simplification.

So far all the signs are that employers regard AE as a compliance obligation rather than an opportunity to help their staff provide for themselves in their later years.

Disappointingly , the advisers who I am speaking to have decided to be led by this rather dismal vision.

Instead of insisting on positive innovation in terms of better governance, better decumulation options and better accumulation options the majority are simply focussing on selling the penalties of “wilful non compliance” and the advantages of signing up to a hand holding service provided by…well you’ve guessed the rest.

In the meantime the gossip is about whether Aegon will replace Standard Life on the Mercer best buy list, why Gerry Ghandi left NOW and who will survive the phony war over the summer and the carnage following the OFT report.

This is not a positive message to be giving to the DWP ,much more importantly the country. The DWP’s excellent PR Campaign focussing on the “I’m In” message is the only positive message I’m getting on auto-enrolment.

Judging by early analytics on www.pensionplaypen.com ,there is a lot of interest in the site as a “one stop shop” for 2014 + stagers. But will our site be able to deliver a simple journey for an employer that will enable them to project plan a way to staging and beyond, select a pension that will meet the DWP’s minimum standards and more importantly add value to their businesses.

It’s a leap of faith.

Will we win general support from Providers so that the site is seen as a way of easing the AE traffic jam?

Will key influencers. journalists, commentators and those who create the rules for auto-enrolment, regard the site as a “Force for Good“?

Most importantly of all, can we get employers who are currently disinterested in workplace pensions to get stuck in and do it themselves?

The answer to this question, as to all the questions that hang over the outcomes of pension reform is whether the 2014+ stagers will find a way to self-serve.

I have only three strategies I can offer the pension industry

Smarten up our act- reduce waste, focus on delivering more for less and work hard
Innovate- we have moved from a sales environment to a controlled purchase environment. I
Promote- we no longer need to sell “saving” we need to sell our capacity to turn this saving into good retirement outcomes.

In smartening up our act, we can start winning back the confidence of key influencers such as Martin Lewis (who openly mock pensions) and start restoring people’s faith in pension planning.

By innovating or at least supporting innovation we can create means for the 1.2m employers still to stage, to do it for themselves

And by promoting ourselves to the public as an industry committed to smartening up and innovating, we may win through.

I say “may” as I have no idea whether we can bring down the cost of enrolment from £1,000,000 to £100 as the DWP wants us to.

Whatever we do , whether through www.pensionplaypen.com or through the endeavours of other organisations will be worth nothing if employers do not respond.

We cannot do it for you guys, in the final counting, you will have had to have done it for yourself or the cost of auto-enrolment, as Lesley Williams pointed out, will be higher than the contributions to the pension accounts!

All you never wanted to know about that Pension PlayPen GPP (henrytapper.com)
Who speaks for workplace pensions? (henrytapper.com)
The Regulator’s brilliant auto-enrolment website. (henrytapper.com)
Ten sexy stats that drive pension firms wild! (henrytapper.com)
“Fair and True” applies to the DWP too! (henrytapper.com)
Get up! Stand up! For your pension rights! (henrytapper.com)
Why bloggers won’t replace journalists (henrytapper.com)
Waiting for Dunkirk ; The Pensions and Benefits show #pb13. (henrytapper.com)
What a charge cap would mean for insurers (henrytapper.com)
Not what’s in the pot but what it buys – Pension RTI (henrytapper.com)

Posted in auto-enrolment, customer service, pensions | Tagged Aegon, DWP, Leslie Williams, Lloyds Banking Group, Martin Lewis, pension, Standard Life, Steve Webb | 2 Comments

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What are you on about now?

And that GPP?

Why don’t you name the insurer?

So how do I get to find out who is behind this?

Am I in danger of buying a pension if I press the wrong button?

Are companies using this for real?

What kinds of companies?

Will your GPP provider take any workforce?

What’s the catch?

That’s a big catch!

Can I self-serve this black box and an adviser?

Is this you trying to sell that First Actuarial lot again?

So why can’t I just go direct to the insurer?

Hmm… maybe I could offer this kind of offer on my website.

How do you make money?

Can I send my clients to you?

Can I join you?

Are you serious?

When are you going to sort out the typos on the site?

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Let’s do a little myth-busting before I launch into my triple wish-list from the investigation and consultation.

Now for what I want to see from the investigation and consultation in terms of practical changes

Take outs

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