Why the FCA should take a leaf out of tPR’s book.

FCAPensions Regulator


The Pensions Regulator have been re-born over the last five years and become focussed on helping advisers, trustees and employees solve pension problems. They have started treating us as  customers and not potential criminals.

Sadly, this attitudinal shift doesn’t seem to be happening in all parts of Government. This sad tale reaches me from a respected adviser who was seeking clarification on the “Time Limits” that might apply to litigation on historic pension transfers.

DISP 2.2.8 deals with Time Bar limits but has a specific exclusion for any contract that has been the subject of the Pension Review.

(we find that) Totally ambiguous as that (sentence) has one of two meanings. Either those cases have had their chance to complain and are now barred for ever more OR they are excluded from the Time Bar Rules so can complain at any time in the future.

You can guess which interpretation FOS take.

So I wrote to FCA asking for a decision… what does the exclusion mean.

Answer I quote “…..it wouldn’t be appropriate for us to comment. We retain an independent and impartial service to both firms and consumers and we feel that this would be placed at risk if we did provide you with this information.”

We make the Rules but are unwilling/unable to actually explain what we mean by them. How does telling us what that exclusion was meant to mean put their service at risk. Surely Clarity & Transparency is what they require from us.

So I suggest we all dust off our Pensions Review cases; make certain the files are complete & clear, those clients are coming up to retirement and FOS are happy to consider claims 20 years after we felt we had dealt with them properly.

Frankly this kind of talk (and I’ve heard several mentions of it) is simply not good enough. If I ask a question of the Pensions Regulator, I expect and generally get a straight answer.

It is critically important that we understand what the limitations are on liabilities for advice.

Why this matters

It is not just the issue of pension transfers that is contentious. Within a few months we will see the end of contracting out and the introduction of a new single state pension.

People have been led to believe that they will get £151 per week from the state at retirement age, well they were until the Pension Minister blew the whistle and reported that only 37% of people will get this full entitlement.

What of the other 63%? They will lose pension either from incomplete national insurance records or from contracting out of SERPS (S2P) at some time since 1978.

Many people with complete NI records but with contracted out benefits will wake up to the contracted out benefits not matching the shortfall in state benefits and will cry foul.

Many will turn litigious claiming they were not properly informed of the risks of contracting-out either by the trustees of their schemes, or by the insurers or by their financial advisors.

Once again , the dogs of war will be unleashed – arriving hot on the heals of the ambulances ferrying the financially wounded to the Financial Ombudsman,

The Pension Advisory Service will be awash with claimants, the courts alive with precedents.

There is no doubt that there has been negligence and once again the carousel of blame will turn, stopping alongside those with deepest pockets (or most robust insurance).

Now is the time for Regulators to prepare themselves for this onslaught and presage the calamity. We need strong statements about liability, about indemnity and about time limitations, otherwise we will continue forever to blame each other for the sins of our fathers.

As I mentioned at the start of this blog, the FCA have an example in tPR. I very much hope that the quality of service we enjoy from our Pensions Regulator and – as importantly- its straight talking approach – will become infectious!


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“Another girl- another Planet” – the wonderful world of NEST


Helen Dean, the new CEO of NEST has set out her stall in the pages of Professional Pensions.

Much of what she says is intelligent and helpful

Helping .. small and micro employers means seeing AE through their eyes. Instead of asking hundreds of thousands of employers to read up on pensions administration systems, memorise technical information, and attend courses on pensions compliance issues, we believe we should modify our approach to fit with what they already understand.

This means two things. We need to help employers self-serve quickly and efficiently, or help them to outsource their AE admin cost-effectively to third parties.

In other words, we can neither ignore of spoon feed these pension fledglings, we must empower them to do things for themselves.

To help employers self-serve NEST has been working with the payroll industry to understand how pensions and payroll can work together. Although smaller employers might have little engagement with the pension sector there are very few that do not have to deal with payroll.

This is disingenuous.  NEST has been working with the payroll industry, as have all the other pension providers. The PENSIONS BIB project , in which NEST participated, produced two common data standards, PAPDIS and PAPDIS 1. NEST has rejected using PAPDIS file formats in favour of going it alone. It’s one planet for NEST and another world for the rest of the industry.

We are currently in testing and development mode with payroll software providers for a new data integration process known as web services. This will enable employers’ payroll software to pick up and crunch all the data needed for AE and send it across to their pension provider automatically. In short, it will be possible for employers to comply with their AE duties through their everyday payroll package. We are still developing this with the payroll industry but we aim to have it up and running ahead of the peaks in the staging profile early next year and it should be of benefit to the thousands of additional employers staging.

The data integration process is not common to NEST, NEST just have their version. All serious workplace pension providers are building the applications to integrate with payroll. Many are using the PAPDIS 1 files to integrate with the engines intermediaries are building, but not NEST.

Not all employers will want to self-serve, however. Our research shows that nearly three-quarters will want to involve an intermediary like an IFA or accountant. Many expect support as soon as they start preparations. Others have said they require ongoing support, with 60% expecting ongoing help with administration. This will mean high levels of demand and an opportunity for intermediaries.

Providing appropriate, straightforward and hassle-free resources to meet this employer demand is a challenge. This is why we launched NEST Connect, a free tool developed to help intermediaries support employers. It is a solution that gives intermediaries their own identity in the NEST system, allowing them to provide support and assistance to their AE clients.

NEST Connect keeps IFA in the loop but on NEST’s terms. On Planet NEST, where NEST is the only provider, “independent” advisers can work with their clients in glorious isolation from the progress made from other providers.

NEST Connect should be pioneering a means by which NEST can be compared to NOW and Peoples and L&G and Standard Life and Aviva and all its other rivals so intermediaries can allow employers to make informed decisions on whether NEST is best.

This is of immediate relevance to large employers, many of whom use NEST as part of a complex workplace pension strategy. NEST seem to have given no thought about how they can report on their performance using  self-service tools to such employers and their advisers.

Instead, NEST is spending tax-payer’s money, encouraging a world of one – Planet NEST.

We believe these initiatives represent the sort of innovation needed to cope with the volumes of employers staging over the next few years, especially now the figure has increased.

They also demonstrate the importance of collaboration.

Neither would have got off the drawing board without the hard work of many partners and we hope our efforts will make it easier for other schemes to do the same. Working with others in the pensions sector and beyond, and with everyone focused on the same goal, we hope this next stage of the AE journey can be just as successful as the last.

I have emboldened NEST’s claim to collaborate because I fundamentally dispute it

  • NEST has chosen to go it alone and not adopt the PAPDIS or PAPDIS1 file formats
  • NEST has not adopted the Master Trust Framework
  • NEST has created a unique and very confusing charging structure making comparison difficult
  • NEST is not co-operating on any common reporting project to make ongoing governance easy for advisers or for large employers.

NEST is Government funded and has so far spent £400m of tax-payers money. It jolly well should be on the money in terms of technology. It should be leading the way (not lagging behind as it is on MAF). It should be collaborating, not establishing competing data standards). NEST should be helping intermediaries compare it with its rivals, not creating a world of it’s own (where it mistakenly pretends it has no rivals).

This myopic view, so evident in Helen’s article, is actually damaging to auto-enrolment. I hope Otto Thoresen (NEST’s Chairman) reads this and takes this criticism seriously.

We need NEST but NEST needs us too. It cannot go it alone, it must be part of the community that sees auto-enrolment through. It cannot live in its own world and we cannot allow this fantasy world- Planet NEST- to perpetuate itself.



For those who are interested in fantasy world’s, there is in fact a Planet NEST(or) – you can read all about it here.

And here are the wonderful Only Ones with their cult hit “another girl-another planet”

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The transfer mess gets worse…


It’s been some weeks since I wrote about transfers. To recap, I have been predicting a seizure in the transfer market , resulting from high demand, low-advisory capacity and pipes blocked with regulatory effluent.

So it doesn’t come as a surprise to read

Hargreaves Lansdown has had to stop taking on new pension transfer business after hitting capacity following the introduction of pension freedoms.

The investment manager has had to turn away clients after being overwhelmed by a doubling in the number of people approaching it for transfer advice, the Financial Times reports.

Head of pensions research Tom McPhail says: “We stopped accepting clients for pension transfer advice a couple of weeks ago because we are running at capacity.

“We would rather not take on any work in order to continue to process the work we have in good time.”

Those making comments below this article in Money Marketing, reinforce the points I make at the top of this article. There really isn’t a satisfactory exit route for those who want out of guaranteed pensions.

There is a wider “macro-economic” angle to this. The guarantees that are so troublesome to advisers (and to providers receiving transfer values), are also troublesome to employers.

Until those guarantees come off an organisation’s balance sheet, they are part of the organisation’s debt and limit it’s capacity to invest, generate new jobs and create the wealth that drives GDP. I understand that considerable attention is being paid within Government to the impact of Defined Benefit Guarantees on the speed of the economic recovery,

These DB guarantees are the protection that many of us have against our own fecklessness, but they are also a barrier to improving general living standards for all. On the one hand, the Government needs to provide “lines of defence” to keep the dam from bursting, on the other it would like to let the flood-gates open.

Hargreaves Lansdowne’s testimony suggests that there is still considerable pressure among people with guaranteed pensions to exchange them for  non-guaranteed savings (in a Hargreaves Lansdowne SIPP or elsewhere).

I have been arguing on this blog all year, that the pressure is from people who are prioritising their financial objectives over the short-term cost of transfer and the long-term value of the guarantees (which they clearly do not value as Government and actuaries value them),

It is time that people’s objectives were recognised as carrying weight in financial decision making. Were it possible to put a price on the emotional value of having a “Place in the Sun” or to be “debt-free” and to offset this against the financial loss of taking a transfer,  I suspect many advisers would be recommending transfers to people who are currently branded insistent customers.

But insistent customers are toxic – they are the people whose business sits on an advisor’s books and is reviewed by future purchasers. Too many insistent customers and your business suffers.

The threat of the Professional Indemnity Insurer withdrawing cover, of the Ombudsman finding against you and the limitless scope and timescale of the liability is hindering the free-flow of people’s money through the dam.

I fear that with sluices blocked in this way, the dam may be stressed to breaking point.


Economists will point out that our recovery is retarded by pension debt.

Employers will complain that they cannot get on with rebuilding their organisations

Trustees will lose the will to fight scammers finding ways to liberate guaranteed pension accounts

Regulators will be powerless to prevent the carnage

Worst of all, people will get fed up with freedoms they cannot exercise and see the pension industry as once again frustrating them getting their hands on their own money.


We call on Government to bring together the various stakeholders trying to sort out the problems surrounding transfers and look both at the advisory issues and the long term “in retirement” solutions into which people can transfer.

We desperately need safe havens into which money – released from DB plans – can be invested. We need more and better in retirement product and we need a default option that neither suffers the inhibitions of guaranteed annuities nor the exuberant extravagance of SIPP drawdown.

We need a simple place for people to put their money, take an income and know they are alright.


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Why “pensions ISAs” must be more than ISAs

ISA and Pension

Ros Altmann has recently commented that simply topping up ISAs and calling them “Pension ISAs” is not going to help solve our long-term retirement problems. The danger of using the ISA structure is that it ignores the fundamentals- that people run out of money in later life because they underestimate their capacity to survive, don’t plan for the costs of healthcare (especially long-term care) and forget about the corrosive impact of inflation on their savings and income.

With at least 10m new pension savers arriving as a result of auto-enrolment, pension schemes are no longer clubs for middle and senior management. Everyone’s in, including quite a few non-taxpayers.

So the pension system needs to work for these new savers without alienating the existing lot. Inevitably this will mean getting existing savers to recognise they will not get quite the free ride EET provides them today. But the current congregation cannot be treated with kid gloves, we are in a new world and it is not exclusively their’s.

The new savers, and those who did little saving till now are unclear about retirement. We know this because we talk to many employers and their staff as part of our Financial Education Programs.

Few understand the real cost of insuring against old age, nor the advantage of doing this collectively.

Few understand why individual annuities are so expensive nor the costs of drawdown. Few understand the costs of long-term care nor the impact of inflation on savings.

Few understand the advantages of investing for the long-term in real assets nor the benefits of diversification.

In short, as a nation, we are very short of the levels of financial education needed for us to manage our pensions ourselves. We will need others to do this for us.

Ros Altmann is right, we cannot expect people to save into incentivised ISAs and then invest and spend the savings in a controlled way.

Sensible , independent minded people are fast coming to the conclusion that while we should be free to do what we like with our savings, we need a fall-back position , if we find ourselves out of our depth.

That means a controlled or “targeted” income stream that people can buy into with their retirement savings. Something simpler and cheaper than drawdown and better value than annuities- something in between.


Here is my break-through moment.

Until now I have struggled to find the trigger to incentivise the use of such a product. But Ros Altmann’s article has given me an idea which makes sense (at least to me).

The incentives that Government gives (the top-ups) should be available to pension ISAs but not to ordinary ISAs, in return for the incentives, those who use them should committ to spending their pension ISAs wisely. That means buying into controlled means of spending (decumulating) their money. That might mean buying a guaranteed annuity or buying into a drawdown program or buying into one of these default mechanisms run along collective lines.

People will be free to spend their money in other ways- to buy to let for instance, but in doing so, they will see a proportion of their savings taken back by the Government.

I see this , not as another tax, but as a clawback of incentives given but not earned. Infact, the clawback would simply return people to the position they would have been had they invested in a pure ISA (not a pension ISA).

The principle that people should be incentivised to behave well, is a good principle. People get the idea of being rewarded for long-term saving and sensible spending.

What we need to do now, is press on with the business of helping people with better ways to spend their pensions (or pension ISAs). That is why it is critical we continue to develop the secondary Defined Ambition legislation.

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Payroll bureaux – help ’em out the trenches!

stuck in trenches

This blog's all about helping payroll bureau get their voice heard.If you are an agent helping people with auto-enrolment - take this survey to get out of the trenches

One payroll manager told me that sitting in her office was like being in the trenches before a big push, shells flying over your head softening up targets in Q1 2016, everyone nervous , frightened and already a little exhausted !

She was of course talking about auto-enrolment and if you are like the ladies I was with this week, you may be suffering the same fatigue.

Sometimes it takes someone on the outside to tell you what’s really going on- you don’t get too good a view from the trenches. Well here’s my dispatches from the reconnaissance aircraft flying over the battlefield!

stuck in trenches

Observation one – being in charge isn’t the same as being in control

The people who are “in charge” are beginning to realise that life is not as simple as rocking down to Sage and Iris , issuing instructions and then expecting the 1.7m employers still to stage auto-enrolment to fall in line. There has been a naive view among insurers (and perhaps among software providers) that if the software house issues a release, everyone will buy it. The capacity of payroll bureau to purchase independently has been underestimated.

stuck in trenches

Observation two – insubordination in the ranks

Not all the software issued by the software suppliers does a good job and none of it does all the job. For instance, insubordinate employers and even some of their staff have a habit of wanting to choose where their money is invested. The “employer journey with a gap in the middle to “insert pension here” is not looking as smooth as it might. Without an obvious way of choosing a pension , many employers are rejecting pensions thrust upon them by trade associations, accountants .middleware and the Government. NEST- NOW -Peoples, Legal & General, Aviva, Standard Life – how to make sense of all this choice.

stuck in trenches

Observation three – “so what happens if I say no?”

The assumption that payroll bureaux will buy what they are given by their software suppliers, that employers and staff will accept the first pension that comes their way and that everyone is going to co-operate to ensure no one gets left behind is comforting.

But the assumption’s made without any real understanding of the people who run and work in payroll bureaux. The duty of care needed to pay the right people at the right time , the right amount is what drives those payroll people I’ve met.

I may spend most of my time circling the battlefield in my reconnaissance bi-plane , but when I do meet payroll agents, they appear to me fair minded meticulous people who are in the habit of saying “no”.

stuck in trenches

Observation four; “auto-enrolment needs bureaux rather more than the other way round!’

The irony is that no-one is actually asking payroll what they want. I dare say at the top of every payroll agent’s wish-list would be more money and less work, but putting the obvious aside, just what kind of support do buruax want , what are they getting and what are they short on.

stuck in trenches

Supporting the troops!

Payroll bureaux are the brave lads and lasses in the trenches, it is they who will go over the top when the balloon goes up next January and we need to make sure that when they do , they have everything they need to do the job. My good friend Alain Caplan , SME supremo at L&G has come to the same conclusion as me.

But rather brilliantly, instead of sitting at his desk pondering the inevitability of payroll falling over, he’s got off his backside and produced an excellent questionnaire to find out what people who do the work are actually thinking.

You can find a link to Alain Caplan’s survey here . If you are online you can do it in a couple of minutes, if you aren’t reading a digital copy of this article you can copy the link into your browser at another time. Either way, it will help us all if we got a little more feedback from the trenches, people find my observations from my reconnaissance plan a little high falutin!

Hopefully this survey will mean that you get a little more of what you want from next year.

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If that’s all there is my friends – well let’s keep working!


The numbers are out , extracted by the tenacious Josephine Cumbo

Jo and I probably share differing levels of disappointment, my expectations were low and have been met, hers were in line with Government forecasts and haven’t.

My take as a 53 year old who has only 16 months till I can get a Pension Wise meeting is that I am not overwhelmed at the prospect. I suspect I can get most of what Pension Wise can tell me in a formulaic way watching this

This is not a criticism of Pension Wise, it is an observation about where Pension Wise takes me.

I am not enamoured of the prospect of having to meet a financial adviser to arrange a drawdown plan, nor of paying a lot of tax to have money in my bank account nor of having to buy in to current annuity rates. I am not impressed by the choices ahead and like over 900,000 of the 925,000 who have been on the Pension Wise website, I am happy to conduct my research on-line.

I appreciate I spend more time on this than most.

People aren’t getting what they want

62% of the people Aon Hewitt surveyed described what they wanted from their retirement savings as a pension. They wanted certainty, high income conversion rates and protection against money running out before they did.

In time they may want this kind of arrangement to help them with accidental expense , such as the need to pay for long-term nursing care.

No one has yet created a simple solution that does all these things. The solutions that provide higher income do not provide longevity protection (relying on a later life annuity decision that becomes harder the later you leave it). The cash in the bank plans don’t come close to providing certainty in any respect and annuities only provide pleasure through schadenfreude

This is not going to be delivered by paternalistic employers

The huge legislative effort to get the Scheme Pensions Act over the line prior to the end of the last parliament has left us with an opportunity to do knew things through collective benefit schemes- target pensions – CDC schemes.

So far, CDC has been marketed wrong, either as a way of easing the pressure on employers to pay DB guarantees or as an alternative to DC pensions for large employers who want to go back to the days before DB was guaranteed.

But to me CDC is not for employers, it’s for the 925,000 “pension curious” people who’ve been on the Pension Wise site and the 907,000 who haven’t been to a Pension Wise meeting. It’s probably for most of the 18,000 who have.

They are looking for somewhere to invest their pension savings that will give them

Certainty, high income conversion rates and protection against money running out before they do

The last thing on these people’s mind is their employers! These are people who are thinking about walking away from employment and enjoying the rest of their life exercising the freedom to do what they want, not what their boss wants them to do.

And employers have no wish to set up some model village for their retirees, some latter day Port Sunlight or Bourneville. They want “separation” from the outcomes of their former employees decisions (while doing all they can to empower them make the right ones).

Solutions are on the design board but not in production

It is perfectly possible for large cohorts of the population . like the 925,000 of us who have been on the Pension Wise website, to start out own collective pension arrangement, invest our money collectively, manage the distribution of income prudently and insure ourselves as a collective pool.

This can be achieved using a mutual structure such as those which we have created in the past to buy houses (building societies) lend money to each other (credit unions) , insure against calamity (insurance) and provide assurance of comfort in extreme old age (mutual pension funds).

What we are not going to get , this time around, is an un keepable guarantee. Even the state cannot guarantee what it can pay us twenty, thirty , forty years from now. Employers are being ruined by promises made twenty, thirty forty years ago (promises that were later converted into guarantees.

The point of these mutual organisations is that they can focus on delivering good outcomes and not of providing a living for the financial services industry. If they are managed properly they can distribute 100% of the assets of the fund over time through smoothing. By properly understanding and managing the longevity of the pool of folk in the fund, the pension can assure those in extreme old age that the money will not run out before they do.

All these things are perfectly possible. We have been doing these things in this country for 70 or more years and hopefully we have learned from our mistakes (over-distribution, lack of controls on costs and poor longevity assumptions).

We have, which we have not had before, machines to help us in the management of collective schemes and means to invest that reduce the cost of intermediation providing a higher percentage of the market return is distributed than might previously have been the case. We have a Government that understands governance and we have a means of running these schemes (with the help of a well thought through primary legislated framework).

A default way to spend our pension savings.

Many – indeed most – of those 925,000 who are interested enough in Pension Wise to go on its site, have done well enough and saved into retirement savings schemes for a pension.

Most want a pension- some will want it as a guaranteed annuity – some will take their chances with individual drawdown – but most of us want something as simple on the way down as we had on the way up.

On the way up we had a default savings structure which guided us as to how much to save and where to save and rewarded us with incentives for doing it right. That’s exactly what most of us want on the way down.

If I tell you that you can have it- you wouldn’t believe it, if the Government told you you could have it, you might believe them!

If we built it – would we come. I suspect that what we need is not a Pension Plowman but a Pension Noah, otherwise we are going to have a lot of pensioners in the next few decades in the soup!

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Towers Watson’s mansion on the hill.

masnion on the hill

It’s good to see Pension Minister Ros Altmann paying some attention to the pension small schemes sign up to as part of staging auto-enrolment.

Corporate Adviser run the article, the link’s here.

Of course Ros is thinking about the 1,200,000 + small employers who will be thinking about contributing to staff pensions for the first time. not the 100,000 employers who have already got something in place but that doesn’t stop a representative from Towers Watson getting defensive.

”Employers don’t want to change scheme just as we are launching into the consultation into pension incentives that could see the TEE basis abolished. And employers will also want to consider those employees who are 40 per cent taxpayers, who do not have to go to the trouble of reclaiming their tax relief where they aren’t in salary sacrifice arrangements if they are in a net pay scheme.”

Give that man a medal for totally missing the point!

The haves and the have nots.

I can’t think of a better example of the gulf between the pension “haves” and the pension “have nots” than their attitude to pension tax relief.

For the pension haves, it’s about squeezing out the maximum relief for those paying the pension bills- the higher rate and super higher rate tax-payers who can afford to employ a big three advisor.

For the pension have nots its about struggling with the arcane terminology, the complexity of legislation and a system totally warped by the super pension wealthy (in their favour).

But when the warp becomes so obvious that even a Tory Chancellor has to say enough is enough, then watch out. There are plenty of reputations that are going to get bruised.

Why the fuss about net pay?

To make it absolutely clear.

If you are contributing to a net pay pension , (such as the occupational pension schemes that have traditionally been set up by firms such as Towers Watson), you will get no tax relief on your contributions – if you earn less than £10,600.  Infact you have to add your contribution to these tax-free bands before you can get basic rate relief.

So someone contributing £1000 today would have to earn £11,600 today to get the tax relief in full.

If that same person contributed £1000 to a contract based scheme (a personal pension or a stakeholder pension) then they would get 20% tax relief at source even if he or she earned less than £10,600. So the contributor would be £200 pa better off in a contract based scheme than a net pay occupational scheme.

You do not have to be paying tax to get pension tax-relief!

So why  do schemes operate on a net-pay basis?

The answer is in the Towers Watson response – because it is quicker and easier for higher rate tax-payers to get tax-relief from net pay schemes. A nice case of the poor making it easier for the rich to save.

And what of the people who are being auto-enrolled into net-pay schemes (many set up and administered by Towers Watson)? Well if they are earning between £10.000 and £10,600(+the contribution) they miss out on a 20% contribution from the Government!

And people who earn £10,000 or more are automatically enrolled!

Reverse redistribution –

So why – in heaven’s name – do schemes operate on a net-pay basis? The answer is in the Towers Watson response -because it is quicker and easier for higher rate tax-payers to get tax-relief from net pay schemes. A nice case of the poor making it easier for the rich to save.

And what’s more, the people who run these net-pay schemes don’t even know they are denying some members tax relief. I took this statement from the frequently asked questions section of a major occupational pension scheme.

Tax relief is when the Government reduces the tax you have to pay. The Government uses it to encourage people to save for their retirement. You can only get tax relief if you pay tax.

That statement “you can only get tax relief if you pay tax” seems materially wrong. You can get tax relief if you aren’t paying tax – but only if you operate a pension under pension relief at source.

Occupational schemes need not work on net-pay

Not all occupational schemes work on “net-pay”. Master trusts are occupational schemes and NEST offers relief at source. Employers who select People’s pension can choose either system. Towers Watson are about to launch a master trust- I wonder what contribution system it will offer.

 Lord and Lady snooty in their mansion

It’s easy to see why Towers Watson missed the point. They don’t have to trouble themselves with the dirty business of auto-enrolling 1.2m SMEs , micros and micro-micros. They are making their money from the filthy pension rich and from advising on net pay schemes (inter alia).

But let’s be clear about this. the Lord and Lady Snooty’s in Reigate have absolutely nothing to say in the debate about what small employers should be doing. They have their mansion on the hill and the closest they’ll get to an SME is when he’s delivering their clean linen.

Lord snooty

 Something in the air

We are on the cusp of getting a new pension taxation system which I hope will do away with the unfair system of pension haves and have nots- make “RAS v NPA” debates redundant and allow us to concentrate on providing workplace pensions for everyone.

Towers Watson are as aware of this as anyone and they would be well advised in the meantime to be a little less haughty and a little bit more engaged in what is going on down the bottom of the hill.

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NEST – an explanation please!

nest future retirment

yes – but what of “assurance” for NEST’s members today?

Yesterday I jokingly referred to the Pension Regulator as the Pension Troublemaker. Its announcement yesterday of a “Directory” of two spells trouble for master trusts who are not on their way to getting the Master Trust Assurance Framework (RRP £15-100K -do shop around!). It also spells trouble for NEST as awkward journalists and bloggers ask why it hasn’t got round to getting the MAF itself.

Infact, Professional Pensions did ask this question and got this rather oblique response that NEST intended to be…

“independently audited in accordance with the AAF 02/07 framework later this year”

Which doesn’t quite answer the question! Does this mean they are going to set up their own standard (as they do on their uncommon data standard) or does this mean they are finally gong to come in line with what the Regulator asked master trusts to do in May 2014?

Well we’ve now had clarification that they do mean they’ll be going for the MAF later this year, it’s in this document.

Either way it seems a pretty rum kind of a gig that that an organisation with a £14m grant and a £387m loan from public funds, is only now getting round to doing a job of work requested by its Regulator fifteen months ago.

Does this matter- well yes it does. If I was NOW or People’s Pension or SEI who have forked out to get themselves accredited with the standard , I’d be making more than a little noise about this. If I was one of the 47 other mastertrusts on the Professional Pensions list (and the many others that aren’t), I’d be telling myself , my shareholders and my members that if NEST can’t be bothered, neither can we.

All of which should be pretty embarrassing to the DWP, who fund not just NEST but the Pensions Regulator and who are pushing through their own set of quality standards designed to make a Qualifying Workplace Pension, a marque we can all trust.

Let’s be clear about this (and Lesley Tictombe, formerly of the FCA and now head of tPR knows this better than anyone, master trusts are exempt from almost all the onerous regulatory requirements that are set upon contract schemes. They have minimal reserving requirements, have lower Regulatory costs and do not have to pay a levy to FSCS.  Nor do they have to set up an independent body to scrutinise them as insurers do with their IGCs.

Consequently their members are not given the same consumer protections as those in contract based schemes. Members are not protected by FSCS and in the event of the failure and subsequent wind-up of a master trust, it would be the members-not the participating employers who would be required to pay the wind up costs. Duncan Buchanan of Hogan Lovells has written expertly on this.

So NEST’s tardiness is giving an excuse to the long tail of smaller master trusts to procrastinate on the MAF. In the meantime, we are beginning to see problems with some trust based QWPS as reported in the Telegraph and on this blog.

I am not holding NEST responsible for the behaviour of other master trusts but I don’t think they are setting a good example. As the beneficiaries of the aforesaid grant and loan which is coming from the public purse, I think they should be setting a good example.

So I call on NEST to make a full statement on why it doesn’t yet have the MAF and what exactly it means by it intending to be

independently audited in accordance with the AAF 02/07 framework later this year

Failing such an explanation I will call upon the Pension Troublemaker to kick NEST off its page of reputable providers until it does!

helen dean 2

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The pension troublemaker!


I love the Pension Regulator- they are definitely our most proactive financial services governor. They are fighting the fight on a number of fronts- but chiefly to make auto-enrolment a success.

So when they make an announcement -it’s worth listening and today they’ve come up with a new way to help small employers choose a pension.

You can read all about it here.

The Regulator’s worked out that as companies staging auto-enrolment get smaller, so they are less likely to have chosen a pension and more likely to need help.

We at the Pension PlayPen predicted this tipping point with some accuracy when we devised this graph.


This shows that the increased demand for help in choosing a pension scheme , ramps up from the end of this year as the numbers of employers staging (the humps at the bottom of the chart) increase.

The other line, beginning with the green dot and ending with the red dot represents the amount of conventional support these employers will get from conventional advisers.

At a point around nine months ago, advisers decided that advising on workplace pension selection for auto-enrolment was not cost-effective and started withdrawing. Today, to find an adviser willing to provide advice on this topic is like pulling a hen’s tooth – or even a Henry’s tooth.

But the demand is ramping up and the Regulator knows that something has to be done. The first baby-steps, (and we do baby-steps in the Pension PlayPen) are being taken with this press release. But our toddlers need to sit in the high-chair.

Sending employers off to advisers who have no interest in helping employers choose a workplace pension (and worse little competence) is not an effective solution. The Pensions Regulator’s blind trust in sticking http://www.unbiased.com and http://www.vouchedfor.com at the bottom of the page , does not make the advisory issue go away. People need help at an affordable cost!

So 1/10 for the Pension Troublemaker on getting to grips with advice. We are going to have to have words!

But 10/10 for the Pension Troublemaker (PT) stirring up the master trust market. Small master trusts may not like the thought of the Master Trust Assurance Framework, but as my blog today makes clear, the MAF is exactly what they need to subscribe to if they are to show the 1.25 m employers still to stage that they are serious.

5/10 for the PT for giving us some helpful hints about what an employer should look out for from an operational perspective when choosing a scheme

You should carefully consider which scheme is a suitable scheme for you and your staff. Areas you should look at include:

  • whether the scheme can be used for automatic enrolment and will accept all your eligible staff
  • whether the scheme is compatible with your payroll software – ask your payroll software provider for help with this
  • whether the scheme will write to your staff on your behalf to tell them about automatic enrolment
  • whether the scheme will assess your staff for automatic enrolment – if not, ask your payroll software provider if they can do this
  • the costs and charges for you and your staff

But this is only half the story. Employers may be keen on this stuff, and rightly so, but employees are rather more keen to know whether the workplace pension chosen , is going to help them to a decent retirement.

There is a half-useful guide on scheme selection you can download here. It’s half way decent but…

It cannot be said too often, the long-term success of auto-enrolment will derive from the performance of workplace pensions and if employers choose a dud, then they had better be clear that they made a decision which seemed sensible at the time.

Due diligence and an informed choice are absolutely vital if the baby steps aren’t to lead to the naughty step. The Pensions Troublemaker knows this very well and I’m sure we have not heard the last of changes to the “employer choice” pages of their site.

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Why I’m backing the master trust assurance framework

master trust3

Back in May 2014, the Pension Regulator launched on an unsuspecting world the ICAEW’s Technical Release “Assurance reporting on master trusts”. At the time I was dismissive of this document and the Master Trust Assurance Framework (MAF). Write in haste , repent at leisure, I have learned its value in the 14 subsequent months.

My concern was structural and centred on this paragraph in the preamble

It is not intended that the provision of a trustee’s report or an independent assurance report be mandatory. However market participants offering Master Trust arrangement may find it advantageous to be able to provide such a report to potential and existing customers…

A risk-based approach to due diligence provides one view of a pension arrangement, it helps establish whether the scheme is being properly run and gives assurance to employers and members of the scheme that their money is in safe hands.

But people want to know that the pension their employer has decided upon is more than well-run, they’d like to thing that it’s “good”.

But what has happened since suggests to me that tPR and ICAEW were right (and I was wrong). The platform on which we need to build a new breed of workplace pensions needs to be first and foremost “well run”. We cannot take “well run” for granted as I originally did.

I have been proved wrong because several of the trusts and master trusts being used for auto-enrolment have proved to have the kind of structural flaws that – had they been subject to the scrutiny of MAF, would probably have been rectified. At the very worst the master trusts would have been taken off the market for a time, but we would have had less failures.

I also failed to anticipate the arrival of master trusts that are entirely unsuitable for auto-enrolment. The Professional Pensions definitive list of master trusts now boasts over 50 schemes open to employers and reckons there are at least another twenty it does not know of. I would be surprised if the total number of master trusts was not well into three figures.

The barriers to entry for those running occupational pension schemes are very low and no higher for those who want to run the schemes under a master trust to multiple employers. The MAF is an entry level standard that every master trust should aspire to. Small master trusts may take a few months to get the MAF and can be “MAF pending”, but if they do not have achievement of the standard written into their early stage business plan, those doing due diligence on that plan are entitled to ask “why not”.

master trust

The answer to that question is of course money. It costs – we think – around £100,000 to achieve the standard, that’s the cost of internal management time and the overt costs of employing a skilled assessment of your processes , sufficient for the standard to be achieved.

To date only two mainstream master trusts, Now and The Peoples Pension have gained the standard, a third SEI has achieved the standard but is not generally marketed as a qualifying workplace pension scheme.

It is now time to ask those small master trusts that are on the PP list but have not achieved the standard to step up to the plate (or risk being marginalised).

Frankly, the risk of auto-enrolment going wrong because of provider failure is too high for us to put our trust in pension schemes that do not meet initial standards.

If the cost of the MAF is not baked into the business plans of the master trusts on the PP list, then it is time for the management of those plans to reconsider their business plans.

I am particularly concerned that NEST, which has the resource to do most things, has not adopted the MAF. It should have been first in the queue and it should be setting an example. Right now, many smaller master trusts can rightly ask why they should be adopting MAF and not NEST.

NOW pensions have been calling for MAF to be mandatory (as IGCs are mandatory for insurers). Bearing in mind master trusts have none of the onerous reporting requirements to the FCA (or are obliged to be reserved to meet EU solvency standards), NOW has a case.

But the immediate answer to the issues of confidence (assurance) , is to ensure that due diligence is carried out by those who are choosing workplace pensions for their staff. It is the employer’s duty to choose, though they can outsource the due diligence to third parties- suitable advisers. At the advisory level, the failure of a master trust not to achieve the MAF must cast serious doubt as to its suitability.

I started this article chastising myself for not sufficiently promoting MAF last year. I will however defend myself on my fundamental concern. MAF is not everything, it is the entry level standard – but it is not the only perspective on which workplace pensions should be judged.

We should consider MAF in time as a commodity – a box ticked. At the back of the MAF are appendices that list the quality features of a workplace pension. These are based on tPR’s 31 characteristics which in turn are based on tPR’s 6 principles and ultimately the 6 metics that make for good DC outcomes published way back in November 2011.

We must move beyond MAF and look at choice in terms of these quality metrics. If people are to be enthused to save, they must think their savings plans really good – not just well enough run.

There is only one MAF, only one standard for master trusts to achieve, in order for master trusts to earn the respect of those conducting due diligence, I hope that those who run them will start seeing the MAF as a “must have”, not a “nice to have” and certainly not a standard to be dismissed.


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NEST report and accounts; £400m and counting

nest offset

The publication of NEST’s 2015 report and accounts yesterday has some good news and some not such good news.

The good news is that nothing seriously went wrong last year, there are now some 14,000 employers using NEST for all or part of their pension provision and that assets under NEST management have passed £400m, quadrupling in the period March to March 2014-15.

The not so good news is that the DWP loan drawn down by NEST has increased by a third over the period to £387, Add to this the £13m in grants from the DWP to meet the public service obligation that NEST has and you get a £400m subisdy.

NEST owns about £60m in assets, we therefore own £335m of NEST (taxpayer’s equity).

For the first time, NEST has more assets under management than public debt – (well it’s a start!).

How we are going to get our money back is an interesting question. Part of the increased debt was because of £21m of interest payments paid on the accrued debt to date. Total income generated by the AMC and contribution charge on members funds was around £5m meaning that NEST is currently only generating a quarter of the income needed to cover its interest payments (in this benign climate).

nest contributions

Any thought of repayment of the principle will have to wait. With interest rates set to increase – who knows how long that wait might be,

VFM for tax-payer

So clearly the tax-payer is in it for the long-term and has every right to be asking what they are getting for their money (that they might not get for free from the rest of the market).

Most of the 80 pages of the report and accounts sets out to prove we are getting value for money and there’s no doubt that NEST are setting standards in many of the areas it is working in.

But there remain questions.

  1. It has not adopted the Master Trust Assurance Framework- why not?
  2. It has not adopted the PAPDIS or PAPDIS 1 data standard -why not?
  3. The TCS administration contract is five years old, what will the new contract say?
  4. The investment review (especially of the reverse lifestyling for younger members, is likely to require an embarrassing volte-face (in the light of actual opt-out experience)
  5. The investment administration contract with State Street remains in place – despite reputational damage to that custodian from its fraudulent activities.

As a general observation, I’d say that for an organisation as subsidised as NEST is, the tax-payer could and should expect more – especially in terms of collaboration.

NEST should be apart of – not apart from – the auto-enrolment community. By ignoring the master trust assurance framework and not signing up to PAPDIS, it is showing itself aloof. You can be aloof as much as you like- just do it with your own money.

New CEO – new broom?

NEST now has a new CEO, Helen Dean, who has been responsible for many of NEST’s successes. I wish her well and expect that she will be less aggressive and more collaborative in her positioning of NEST than her predecessor.

Tim Jones leaves with a job pretty well done but with my questions unanswered, he has been overall a great CEO but the next five year’s of NEST’s work need a differing approach.

Of course the numbers will catch up, it’s very possible that assets will quadruple again next year and that the loan interest will at least be covered. Staff costs have actually fallen in 2014-15 and there is no reason to suppose that NEST’s fixed costs will increase overall.

Nevertheless, the new business strain of on-boarding a substantial chunk of the 1.2m employers in the initial staging period, still to embark on auto-enrolment is a serious risk and could result in some major costs (if the technology doesn’t work).

Which is why NEST should be pleased that there other excellent pensions to share the load. NEST and the country could have faced 2016 pretty well on its own, instead it faces healthy competition from Peoples, NOW, L&G ,Standard Life, Aviva, Royal London, Scottish Widows, Aegon and a host of wannabe master-trusts all snapping at its heels.

Let’s hope that NEST will start collaborating rather than competing with the market, that is the only way that we will make it through to 2018 and beyond without casualties.

Ironically , I think it is the best hope we have of seeing our money back.


nest future retirment


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How much does auto-enrolment cost?

Living wage

The new living wage will make auto-enrolment more expensive

If you are a small company, one of the unexpected items you’re going to have to add into your financial plan for the next three years is the additional cost of pensions.

The new Living Wage means that the contributions for many employees are not going to be absorbed into the wage bill, they may well be paid on the new living wage.

If you’d like to do some modelling on the cost to your organisation on your current payroll, you can now do so for free. Go to www.pensionplaypen.com and do a workforce assessment. We’ll throw in a full “download and keep” report.

Model the extra pension costs of the Living wage here

We’ve already had employers modelling on current earnings and revised earnings using the new living wage.


Historical assessments no longer relevant

The contribution costs will become business as usual, but there are additional costs of auto-enrolment to do with setting up and managing leavers , joiners, opt ins and opt outs.

In their initial impact assessment, the DWP estimated these costs as follows;-


We have asked the head of the DWP, Charlotte Clark, whether these figures hold true. Her response is that the DWP are revisiting these figures and will be publishing the revised costs based on actual data and revised projections for the smaller firms.

In the meantime there has been  research by Creative Benefit Consultants and the Centre of Economic Business Research. I have written about this work here, expressing concern that the £15bn bill to business, it suggested, was alarmist.  CBS reckoned that typically a medium sized employer would have to commit 300 man days to setting up auto-enrolment.

The problem with this research, (as with the DWP’s work), was that it was based on the world as we knew it (the CBS report was published in 2012). Since then, the costs of auto-enrolment software has plummeted and the cost of assessments , selection and implementation is falling all the time.


Add your data to the Pensionsync/Clacher survey here.


Equally importantly, none of the earlier studies looked at the ongoing cost to those employers, their payroll bureaus and accountants who they will be increasingly relying on.

So I’m really pleased that our friends at pensionsync have dug into their own pockets  to gain a snapshot of recent experiences of staging and processing and teaming up  with Dr Iain Clacher from the University of Leeds to undertake a research project into the current costs of automatic enrolment.

The survey is called Automatic enrolment: the payroll perspective. You can access it here (until 8th August 2015, when it the survey will close): https://leeds.onlinesurveys.ac.uk/automatic-enrolment-the-payroll-perspective

The more experiences that they can collate from bureaus and accountants the more relevant the results that will be available for everyone, so please highlight the survey to your clients and contacts.

All participants will receive a free copy of the report and the results will be generally available in the autumn – in time for the bulk of stagings that will be upon us from 2016.

Dr Iain Clacher

Dr Iain Clacher


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A new pension deal

new deal


There is only one thing that distinguishes a pension plan from an ISA plan and that is liquidity. By “liquidity”, I mean the ease with which the plan holder can get hold of the money.

The simple social contract that holds in this country, is that taxpayers will their fellows for holding on to their money and not spending it early. ISAs get some reward, pension plans get more reward. This reflects the greater sacrifice made by those who save into pension plans – they give up any right to their money till 55.

My understanding, having read the Treasury consultation on pension tax incentives, is that it doesn’t challenge this consensus. Pension plans will continue to receive greater tax incentives than ISAs, the issue is over “how”.

Any thought that the plan for  pensions and ISAs to be given tax equivalence is rubbish. This is what the Treasury is actually considering…

a fundamental reform of the system so that pension contributions are taxed upfront (a “Taxed-Exempt-Exempt” system like ISAs), and then topped up by the government, may allow individuals to better understand the benefits of contributing to their pension as the government’s contribution might be more transparent…

Anyone who has been involved in selling pensions, advising on pensions or providing “financial education” knows what the Treasury is getting at.

The issue is not just that pension tax-relief is expensive, it’s that HMRC are getting insufficient return on the investment – in terms of voluntary long-term saving by those who will otherwise by dependent on HMRC – in later life.




At the heart of the consultation is a review of how people think about savings products.

…these issues have led to a shift in consumers’ expectations of how savings products should operate, how they should be priced and how they should be sold

The Treasury don’t admit to making mistakes, it’s not in their DNA. Consumers have moved on, taxation hasn’t, it’s time for fundamental change.

But implicit in the consultation is an admission that policy-making on pension taxation over the past 30 years has been pretty shoddy. Instead of having a big idea and sticking to it, politicians have twiddled and turned and made pensions taxation into a complicated thing that benefits lawyers and tax-advisers to the detriment of popular confidence.

The Treasury are now consulting on how they can restore confidence in pension plans by making their tax-incentives simpler and fairer.

Since the point of the Pension Play Pen is to restore confidence in pensions, I am very impressed. Bring it on.



The most unfair system – the net pay system – is currently denying a substantial slug of pension savers any form of tax-relief on their savings. You can read what the Government has to say about the difference between net pay and pension relief at source here

Unfortunately Government do not understand the implications of the two systems for the low paid. I know this because I ask them,

The National Association of Pension Funds, which runs the Pension Quality Mark, is quite happy to award its quality mark to schemes that operate net pay arrangements. If you look at this list of employer sponsored pension plans, you’ll see that the majority are occupational schemes and they operate under net pay.

In as much as the NAPF and PQM are institutions, the practice of denying low earners tax relief so that high earners can have quicker access to their tax relief (what net pay does) is institutionalised.

Amazingly, the Pension Quality Mark, which is supposed to be the standard for trust, master trust and contract based pensions, makes no mention of aligning the scheme’s taxation treatment to the demographic of the staff. It doesn’t even ask the question!

If you don’t believe me- read the standard!

I don’t think that the NAPF is institutionally biased towards higher rate tax payers and against those in low earnings who do not pay tax. I just think the people who work there have no idea or interest in what it’s like to be poor. Consequently, they are happy to promote schemes as having PQM or even the wonderful PQM+ which are cheating poorer members to an entitlement of an extra 20% of contributions.

I don’t think that the pension tax system is institutionally biased either. I think it has become so complicated that- apart from a hardcore of tax specialists (who generally don’t give a toss about low-waged people), nobody understands the rules.



Sadly, the “experts” who think they will be leading the debate on pension taxation will be the NAPF and the pension lawyers and the tax specialists. Here is Joanne Segers  in the NAPF’s response to the pension taxation consultation.

“Experience shows us that long-term success in pension policy is built on a shared understanding of a problem, a shared building of the policy solution and a shared responsibility for delivering that solution. For this review to succeed it must look at taxation of pensions in the bigger picture of what genuinely incentivises people to save consistently over the long-term for their retirement.”

The NAPF clearly want to be at the heart of this debate.

But what is clear to me, is that the NAPF and their PQM department do not understand pension taxation as it effects low-earners. Nor do most civil servants. This is because they are higher rate tax-payers and spend their time with other higher rate tax-payers.

Most of the experts – the lawyers, tax experts and their customers the trustees, the finance directors , HRDs and CEOs do not have any experience of what its like to pay no income tax , to collect benefits and to worry about pennies rather than pounds.

Which is why they continue to dish-out gongs to net pay schemes while worrying about the impact of the annual and lifetime allowance on take up rates.

For Joanne Segers and the NAPF to participate in this debate, they need to get off their high-horse and start from the bottom up.

What Martin or Paul Lewis can tell the NAPF is that what incentivises people to save is knowing

  1. they will be treated fairly. The current tax-system is not doing that.
  2.  what is going on. The current tax-system is not doing that.



When we have a simple system that is fair and understandable, we will be able to build confidence in pensions. That will allow the Government to build on what has already been done with automatic enrolment and the reform of workplace pension schemes.

It will create an environment where people will want to save and either pay more voluntarily or through a ratcheting up of the AE contribution scales.

If we get it right- fundamentally right- we can make it simple- keep it simple and have a sustainable taxation system that can’t be gamed by the experts.



In the meantime, there will be considerable pain as we move from one system of taxation to another. That pain will be felt by pension providers, payroll and yes – by those who will no longer have the luxury of higher rate tax-relief on their pension contributions.

Undoubtedly there will be transitional problems, not least in the super-obscure world of DB pensions and the fiendishly complicated processes established to comply with auto-enrolment.

But the prize is worth it. A properly reformed pension system that has the confidence of the majority of the people in this country and gets Britain saving – is something to go for.

I for one am ready for a new pensions deal.


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We had it coming!


I haven’t read the reaction of the pension hierarchy to the Treasury’s consultation on the future of pension tax relief – I don’t have to. Steve Bee’s tweet

“I don’t want to spend the rest of my time on this planet being known as ISA Guru”

Sums up the reaction of many I have spoken to. For an industry that has got fat, the loss of EET appears “pension-apocalyptic”. But EET is grossly unfair and the unfairness has been compounded over the years by scheme design measures which have been aligned to the interests of the affluent stable end of the workforce.

There are a few notable exceptions, Michael Johnson is at the fore. Michael is promising more of his “bogoff pension analysis” and it will be published here. He has my support and that of Kevin Wesbroom, judging by  Professional Pensions

Wesbroom proposes a ‘buy one, get one free’ model, also championed by Johnson, where the tax relief is converted to an explicit addition to the pension pot. He says this has “high intuitive appeal” but the price would be the switch to ISA-style taxation.

Why bog-off works

The “intuitive appeal” of bogoff is that it provides incentivisation from the public purse in a much fairer way. £200 paid into a buy 2 get 1 free arrangement yields the same tax incentive to someone paying no tax as someone on 45%. Under the current arrangements, the 45% tax payer would receive a subsidy of £90 , the non-taxpayer would get no subsidy at all.

This assumes a “net-pay” taxation system, the approach favoured by occupational pensions. For those few occupational schemes (NEST and Peoples Pensions spring to mind) that operate on a Relief at Source basis, the non tax payer gets £40 relief but still less than half than his wealthy colleague.

Why has Michael Johnson been ignored?

The continuation of the net-pay arrangements among larger schemes tells us something about the attitude to pension democracy among those who run these schemes. Despite their being more tax relief on offer under the Relief at Source system, occupational schemes have chosen to stay with net-pay, mainly because it gives immediate relief for higher rate tax-payers (who might otherwise have to wait for the top-slice of their pension tax relief at the end of the tax year.

This marginal tax-flow advantage has been to the major disadvantage of low earners and part-timers who (under net-pay) lose their incentives to save altogether. Any pension manager, trustee or consultant operating a net-pay arrangement and  arguing that the current system of tax-relief should stay, needs to be able to explain how net-pay helps low-paid staff.

In my opinion, Michael Johnson has been ignored , is why a move to PRAS has been ignored. It is because most people in pensions actually enjoy the complexities of our super-complex system. It makes pensions special, keeps pension people in jobs and ensures that those jobs are valued at the wages that make higher-rate tax relief a holy-cow.

The pensions industry is , in-short, hopelessly compromised – and pension people the least able to see the wood from the trees.

I suspect that those opening the submissions to the Treasury’s review will have this in mind. If I were on that committees I would be preparing a big rubber stamp marked

They would say that wouldn’t they


And is pension saving any different from ISA saving?

Operationally, paying a pound into a pension plan is no different to paying a pound into an ISA. The DC pension industry has long since given up on paying pensions, that’s what DB plans do. Instead they have focussed on annuity purchase, drawdown and cash-out.

Only in places like New Brunswick in Canada and Holland has there been any real attempt to provide pensions directly from people’s DC savings.

When challenged to come up with a more ambitious approach to operating DC pensions, the pension industry sat back and scoffed.

When challenged to come up with a better system to measure and bring down pension costs, the pension industry sat back and scoffed.

If we had not had Government intervention, members would still be charged commissions for the distribution of advice that seldom arrived and savings plans that were coming (under auto-enrolment) anyway,

We had it coming!

Bottom line is that the pensions industry has failed to make DC pensions special and has not got a leg to stand on when it comes to special pleading.

Where do we go from here?

I would advise those in pension power to accept that the game for EET is up. Pensions can no longer rely on the cosy relationship with the Treasury that allowed them to coast for 30 years with no genuine innovation and no eye to treating (all) members fairly.

Where we go from here is to make pensions better. We make pensions better by focussing on outcomes. That means reducing costs by reducing the number of pension arrangements.

That means fewer larger schemes, with better governance and a focus on outcomes – not on distribution.

Funnily enough, the abolition of EET may be exactly what the pension industry needs to start serving its customers again.

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When the dust settles…

dust settles 3

For the second time in two years, George Osborne has produced a budget that will radically change the way we thing about retirement saving.

If 2014 was the year we re-thought the way we spent our retirement spending, 2015 asks us to change the way we save for our later years.

The retirement savings business will change between 201o and 2020 in three fundamental ways;

  1. The provision of corporate guarantees on retirement income (DB) will have collapsed. By 2020, DB will be a legacy management issue for employers in the private sector.
  2. The state pension will have been simplified and re-rated by the triple lock. Whatever happens in 2016, four more years of real increases will make state provision more valuable
  3. Auto-enrolment will make participation rates in the new DC saving regime pretty well universal, those “out” will have some questions to answer.


dust settles

The new environment is a platform for yet more radical change. The current pension system delivers to those with net available income, substantial tax breaks. For those at the bottom of the income scale, there are tax breaks (unless the employer offers a net pay system) but little net available income to benefit from them. The system is skewed to the “haves” and the proposals on the table from the Treasury, set out to redistribute from rich to poor.

As with the move to the “living wage”, cyncics will argue that Osborne is cutting off the oxygen supply to the left- by adopting a radically left-wing position (which happens to net the Government significant immediate tax gains).

I am not that cyncial. If we want to boost the state pension then we need money to do so, taken together – a pension savings system that credits those who need help with more is badly needed. Pension inequality is Britain is very obvious.


dust settles 2

When the dust settles, we will see that this budget has brought in many more at the bottom of the income ladder- into funded pensions- via auto-enrolment.

The budget will have initiated a real debate about how public funds are used to incentivise long-term retirement saving.

And we will have an overhaul of all the complex nonsense that has built up over the past fifty years resulting from the battle of those with money to use pensions as a tax-avoidance scheme.

If you think I am joking , then read the 8 questions that the Treasury Consultation asks us. They will leave you in no doubt that , when the dust settles, things will be very different.

The Treasury’s eight questions

1. To what extent does the complexity of the current system undermine the incentive for individuals to save into a pension?

2. Do respondents believe that a simpler system is likely to result in greater engagement with pension saving? If so, how could the system be simplified to strengthen the incentive for individuals to save into a pension?

3. Would an alternative system allow individuals to take greater personal responsibility for saving an adequate amount for retirement, particularly in the context of the shift to defined contribution pensions?

4. Would an alternative system allow individuals to plan better for how they use their savings in retirement?

5. Should the government consider differential treatment for defined benefit and defined contribution pensions? If so, how should each be treated?

6. What administrative barriers exist to reforming the system of pensions tax, particularly in the context of automatic enrolment? How could these best be overcome?

7. How should employer pension contributions be treated under any reform of pensions tax relief?

8. How can the government make sure that any reform of pensions tax relief is sustainable for the future?

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Tee Time?

michael johnson

A couple of weeks ago, I spoke with Michael Johnson about what he thought the budget’s proposals for pensions would be. He reminded me of this paper he had sent me in April and suggested that the Budget would be radical.

Here is his paper, delivered in April -before the election – which I suspect has been quite influential. We need to review tax-relief on pensions; it isn’t fair and in the new world of freedoms it doesn’t work. I am not a conservative, an economist or particularly good on tax, but I do understand Michael’s argument and fundamentally support his approach.

I have included the Treasury’s eight consultation questions at the end of this blog. Read them after you’ve read the paper.

Today, two disparate worlds

The savings landscape is characterised by a fundamental schism.  Saving within a pensions framework provides tax relief on the way in (“EET”), whereas subscriptions to New ISAs (“ISAs”) are made with post-tax income, but withdrawals are tax-free.[1]  Consequently, ISAs are “TEE”.


Over the last six years, stocks and shares ISA subscriptions have increased by 90%, to £18.4 billion in 2013-14, taking the total market value to £241 billion.[2]  In the same year, an additional £38.8 billion was subscribed to 10.5 million cash ISA accounts, taking the ISA cash mountain to £228 billion.  Clearly, engagement with ISAs is high, confirmed by industry surveys, and acknowledged by the Chancellor when he raised the annual subscription limit by 30%, to £15,000, in the 2014 Budget.  Importantly, the ISA brand is still reasonably trusted. 


Conversely, over the same period, the amount contributed to the EET world of private pensions reduced by 25%, to £7.7 billion in 2013-14, a figure which includes basic rate tax relief.[3]  Official data excludes SIPPs and SSASs, which attracted perhaps another £6 billion.


It is clear from the manner in which basic rate taxpayers are saving (i.e. 84% of all taxpayers) that the lure of 20% tax relief on pension contributions is insufficient to overcome pension products’ complexity, cost and inflexibility (until the age of 55), as well as a widespread distrust of the industry.  In addition pension products are increasingly at odds with how people are living their lives, particularly Generation Y (broadly, those born between 1980 and 2000).  Ready access to savings is the key requirement, valued above tax relief.  Indeed, Generation Y is so disengaged from private pensions that the industry’s next cohort of customers could be very thin.  Consequently, they are missing out on upfront tax relief: an EET tax framework for retirement saving is failing the next generation.


The 2014 Budget


Following the 2014 Budget, there is now no obligation to annuitise a pension pot.  This shatters the historic unwritten contract between the Treasury and retirees, that the latter, having received tax relief on their contributions, would subsequently secure a retirement income through annuitisation. 


This expectation was made clear by Lord Turner’s Pensions Commission, which explicitly linked the receipt of tax relief with annuitisation, thereby reducing the risk of becoming a burden on the state in later life.  “Since the whole objective of either compelling or encouraging people to save, and of providing tax relief as an incentive, is to ensure people make adequate provision, it is reasonable to require that pensions savings is turned into regular pension income at some time.”[4] 


In addition, a subsequent review of annuities by the Treasury stated that the fundamental reason for giving tax relief is to provide a pension income.  Therefore when an individual comes to take their pension benefits they can take up to 25 per cent of the pension fund as a tax-free lump sum; the remainder must be converted into a pension – or in other words annuitised.[5]


It is patently clear that tax relief and the 2014 Budget’s liberalisation are incompatible: the door is wide open for wholesale reform, not tinkering, of tax relief.  This has been recognised by the Treasury Select Committee which, in its response to the 2014 Budget, commented that in light of pensions’ improved flexibility, ISAs and pensions will become increasingly interchangeable in their effect.  It went on to suggest that the government should work towards a single tax regime to reflect this, and also examine the appropriateness of the present arrangements for the pension 25% tax free lump sum.


The committee chairman, Andrew Tyrie MP, was clear: in particular, there may be scope in the long term for bringing the tax treatment of savings and pensions together to create a “single savings” vehicle that can be used – with additions and withdrawals – throughout working life and retirement.  This would be a great prize.


Pensions tax relief: expensive


Today’s tax-based incentives for pension saving are hugely expensive, totalling over £52 billion in 2013-14, in the form of:[6]


(i)      upfront Income Tax relief on contributions (£27 billion);


(ii)     NICs rebates related to employer contributions, facilitated by salary sacrifice schemes.  These take advantage of a tax arbitrage at the Treasury’s expense, and cost some £14 billion annually (a figure that will accelerate with auto-enrolment);  


(iii)    roughly £4 billion on the 25% tax-free lump sum; and


(iv)    some £7.3 billion in respect of the investment income of both occupational and personal pensions schemes assuming relief at the basic rate of tax.  HMRC does not make an estimate of the relief provided for capital gains realised by pension funds.


To put this into perspective, this is over 93% of 2013-14’s Total Managed Expenditure the Education (£56 billion), and substantially more than Defence (£43 billion), and about the same as the combined budgets for Business, Innovation and Skills (£33 billion), Transport (£14 billion) and Energy and Climate Change (£8 billion).[7]


Pensions tax relief: inequitable


Income Tax is progressive, so tax relief is inevitably regressive.  Consequently, the broad acceptance by society that higher earners pay higher rates of Income Tax is nullified because affluent baby boomers are able to minimise their Income Tax by harvesting tax relief on pensions contributions.  And for those within touching distance of the private pension age of 55, shortly thereafter, they can access their pots to withdraw the 25% tax-free lump sum and, in many cases, drop down to a lower tax bracket before making further (taxable) drawings.  Only one in seven (roughly) of those who receive higher rate tax relief while working go on to ever pay higher rate Income Tax in retirement.  In this respect, tax relief is not Income Tax deferred, as claimed by proponents of higher and additional rates of tax relief.  


Consider some evidence.  In 2012-13, 10.8 million workers received tax relief of £28 billion on their (and employer) contributions, while a similarly sized pensioner population of 11.4 million paid only £11.5 billion in Income Tax.[8]  This latter figure will rise as the population ages, but there is no prospect of the Treasury recouping its investment through Income Tax paid by pensioners.  Higher and additional rates of tax relief are at a huge net cost to the state: they are a bad investment of taxpayers funds.  Recurring budget deficits are one by-product of this financial largesse (which makes a nonsense of the headline 40% and 45% rates of Income Tax), and the accumulating debt mountain will loom over the next generation. 


Another consideration concerning fairness is that Treasury-funded tax relief boosts the volume of assets that fund managers have to manage, and therefore their income.  Indeed, the Treasury is the fund management industry’s largest client: since 2002, it has injected, through people’s pension pots, over £300 billion of cash, on which charges and fees are levied.[9]  This is akin to a state subsidy of one of the highest paid industries in the world.  


Pensions tax relief: ineffective


The purpose of a tax relief is to influence behaviour.  However, it is evident that for many of the wealthy, tax relief on contributions to pension pots is primarily a personal tax planning tool, rather than an incentive to save: they would save without it.  Consequently, it is extraordinary that we accept a framework which provides the top 1% of earners, who are in least need of financial incentives to save, with 30% of all tax relief, more than double the total paid to half of the working population.  This inequitable distribution of tax relief partly explains why the huge annual Treasury spend has failed to meet the policy objective, which is to establish the broad-based retirement savings culture that Britain desperately needs. 


In addition, tax-based incentives to save have been found to be largely ineffective because most people (perhaps 85% of the population) are passive savers: they do not pro-actively pursue such incentives.  Default (“nudging”) policies are deemed to be far more effective for broadening retirement savings across those who are least prepared for retirement, i.e. lower-income workers, in particular.  The Danes, for example, concluded that for each DKr1 of government expenditure spent on incentivising retirement saving, only one ore (DKr 0.01) of net new savings was generated across the nation.[10]  Given that Denmark is not wildly different to the UK (both culturally and economically), one could conclude that much of the UK Treasury’s spend on upfront tax relief is wasted.  So, what to do?


Savings tax unification: inevitable?


Successive saving-related policy initiatives taken by the current government could be interpreted as stepping stones towards the ultimate merger of pensions and ISAs.  These include:


(i)      several reductions in pensions’ lifetime and annual allowances, from £1,800,000 and £255,000 respectively in 2010-11, to £1,250,000 and £40,000 today (with the lifetime allowance being further cut to £1 million in 2016);


(ii)     significant increases in the ISA’s annual limit (up 30% to £15,000 in the 2014 Budget) and, with the addition of a Help to Buy ISA (2015 Budget), an expansion of the ISA range;


(iii)    the end of pensions’ so-called “death tax” (announced at the Conservative Party conference), followed by its abolition for ISAs (2014 Autumn Statement); and, of course,


(iv)    the annuitisation liberalisation announced in the 2014 Budget, effective April 2015. 


There was also a hint in the 2014 Autumn Statement that NICs rebates on employer contributions to pensions could be under review, when the Chancellor said that the Treasury would be taking measures to prevent “payments of benefits in lieu of salary”.  Ending them would equalise the tax treatment of employer and employee contributions, and finally put an end to salary sacrifice schemes, long overdue.


The Treasury’s perspective: TEE preferred


From a Treasury cashflow perspective, moving the whole savings arena onto a TEE basis would be hugely attractive.  The cash outflow would move back in time, by up to a generation, as upfront tax relief, paid out to today’s workers, would be replaced by Income Tax foregone from today’s workers, once they had retired a generation later.  In addition, transition would provide the Chancellor with an opportunity to make a significant reduction in the deficit.  This could be The Great Trade to do.


Implementation: the Australian experience


Until 1983, the tax treatment of Australian retirement savings was EET, i.e. as per the UK today, with lump sums taxed at 5%.  The first transition step was to increase tax on lump sums to between 15% and 30%, depending upon the recipient’s income.  Then, five years later, in 1988, Australia introduced a 15% tax on contributions and income, and a 15% tax rebate on retirement income: essentially a “ttt” arrangement, where the small “t” denotes an effective tax rate below the individual’s marginal rate of Income Tax.  This framework endured for nearly 20 years until, in 2007, Australia removed any tax liability on retirement income in respect of contributions that had already been taxed: “ttE”.  Lump sums at retirement attract the lower of the retiree’s marginal rate and 16.5%, up to a size cap, with the marginal rate on sums above the cap.


Australia’s ttE is not so different to TEE: the burden of taxation in both cases falls at the time of saving, with retirement income being tax-free.  Australia has pondered whether to go to tEE, i.e. to remove any tax burden during accumulation, but with almost A$2 trillion of assets sitting in the pension system, the government could not afford to leave it completely untaxed. 


Big Bang preferred


Australia’s transition experience to ttE was not ideal; it has left savers and providers  having to keep track of pots with three different post-retirement tax treatments, depending upon the timing of the contributions.  In the interests of simplicity, the UK should grasp the nettle and adopt a clean “Big Bang” approach, to avoid some form of protracted, progressive, transition.  The Treasury should identify a date when EET simply ceases in respect of all future contributions.  Existing pension pots would close to further contributions, to be left to whither naturally, with the saver paying his marginal rate of Income Tax on withdrawals. 


So, what should replace private and occupational pensions in a purely TEE savings arena?


The Workplace ISA


The Workplace ISA beckons and, for those without an employer sponsor, alternative (competing) providers should be available, including NEST (the NEST ISA).  These ISAs could incorporate a form of risk pooling in decumulation (i.e. auto-protection), to spread the post-retirement inflation, investment and longevity risks that few of us are equipped to manage by ourselves.  Participation, however, should be optional, enabling savers to embrace the 2014 Budget’s post-retirement liberalisations (notably, to take cash from pension pots).


Workplace ISAs should include one or more features that maintain employer participation in retirement saving provision: today, employers contribute roughly 75% of all pension contributions.  Any financial incentives, such as NICs rebates on employer contributions (note that TEE refers to the saver’s Income Tax, not employer NICs) should, however, probably be accompanied by some form of “lock-up” period.  Certainly, employers should be consulted.  Workplace ISAs should be included in the auto-enrolment legislation, and excluded from means testing purposes, as per today’s pension assets. 


Finally, we could explore evolving TEE into “Taxed, Exempt, Enhanced”, redeploying some of the savings from having ended upfront tax relief into post-retirement top-ups: particularly appropriate given today’s interest rate environment.  The Swiss, for example, subsidise annuities, which perhaps explains why they have the highest level of voluntary annuitisation in the world (some 80% of pension pot assets).  We could extend the concept to include drawdown.  A forthcoming paper will go into more detail.


A version of this article first appeared in CSFI’s Financial World magazine, April 2015.

Michael can be contacted on majohnson@talktalk.net                Twitter: @Johnson1Michael


[1] Retirement savings products are codified chronologically for tax purposes.  Pensions are “EET”, as Exempt (contributions attract tax relief), Exempt (income and capital gains are untaxed, bar 10p on dividends), and Taxed (capital withdrawals are taxed at the saver’s marginal rate).  Conversely, ISAs are “TEE”.

[2] HMRC; Individual savings accounts statistics, Tables 9.4 and 9.6, August 2014.  In 2013-14, 3m people contributed an average of £6,163 to their stocks and shares ISA.

[3] For 2012-13, HMRC; Table Pen 2, Personal pensions, February 2014.

[4] A New Pension Settlement for the Twenty-First Century: The second report of the Pensions Commission (2005).

[5]  HM Treasury (2006), The Annuities Market.

[6]  HMRC; Cost of Registered Pension Scheme Tax Relief , Table Pen 6, February 2015.

[7] Available at: www.gist.cabinetoffice.gov.uk/oscar/2013-14

[8] HMRC (2013); Personal Pension Statistics.

[9] HMRC; Personal Pension Statistics, Table Pen 6, February 2015.

[10] Chetty R, Friedman J, Leth-Petersen S, Nielsen T, and Olsen T (2012),  Active v. passive decisions and crowd-out in retirement savings accounts: evidence from Denmark. NBER Working Paper, No. 18565. Available at: obs.rc.fas.harvard.edu/chetty/crowdout.pdf.

The Treasury’s Eight Consultation questions

The government has today launched a consultation on a root-and-branch reform of the tax treatment of pensions. Here are the eight questions it wants answered.

1. To what extent does the complexity of the current system undermine the incentive for individuals to save into a pension?

2. Do respondents believe that a simpler system is likely to result in greater engagement with pension saving? If so, how could the system be simplified to strengthen the incentive for individuals to save into a pension?

3. Would an alternative system allow individuals to take greater personal responsibility for saving an adequate amount for retirement, particularly in the context of the shift to
defined contribution pensions?

4. Would an alternative system allow individuals to plan better for how they use their
savings in retirement?

5. Should the government consider differential treatment for defined benefit and defined contribution pensions? If so, how should each be treated?

6. What administrative barriers exist to reforming the system of pensions tax, particularly in the context of automatic enrolment? How could these best be overcome?

7. How should employer pension contributions be treated under any reform of pensions tax relief?

8. How can the government make sure that any reform of pensions tax relief is sustainable for the future?


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Source Pensions – a tough lesson for auto-enrolment.

Source Pensions

Over the weekend , the Telegraph published a story about Source Pensions . In the article it correctly claims that many pension savers have been automatically enrolled into illegal schemes. Source Pensions admit this is “regrettable”, I agree,

You can read my blog published last month on the subject here. This blog is also now published in Professional Pensions. I argue that the lack of candour of schemes such as  Source about how they actually operate is threatening auto-enrolment’s good name.

In the Telegraph article Katie Morley writes

“It (Source) is the first major legal setback to hit “auto-enrolment”

She is right. While the pension industry worries about the fines meted out to employers for non-compliance with auto-enrolment regulations, the public worry about their savings.

Over the past 12 months , we have had a number of pension providers who have not been offered on http://www.pensionplaypen.com . Source was one of them. The reason is always the same, unless we can be satisfied that the workplace pension stacks up against our six criteria, we do not offer it to the public. For the most part, small providers find it too much hard work to answer our due diligence, some answer it and we are unimpressed and occasionally we follow the Regulator’s process where we suspect there may be a fraud.

Almost all the problems we have had with pensions over the past 30 years could have been avoided if those selling and purchasing the pension plans , had been rigorous in their selection.

Source is an interesting case study. Katie found a corporate purchaser who claimed

“I wanted my staff to have the best pensions possible but when I approached the big providers they said they don’t work with small businesses like mine.

“I chose Source Pensions because they were cheap, but that turned out to be a mistake.”

This sounds  implausible. Not only does NEST have a public service obligation to take small schemes, but there are a host of other providers keen to do business with employers large enough to have already staged. Nor are Source Pensions that “cheap”.

I suspect that this particular purchaser didn’t have a clue what he was up to and was prepared to take the adviser’s advice. Most S0urce sales were “advised”.

The reason that Source Pensions were popular was that they offered financial advisers an opportunity to do what they feel they are best at, manage the accumulating wealth of individuals. Source openly advertised their arrangement as a way for advisers of getting paid by the pension fund (AUM or “asset under management” remuneration).Source Pensions 4

As each employer had their own Source Pension, each could have their own investment structure and (by extension) there own investment managers.Source was a godsend for advisers wishing to differentiate themselves.

And it was compliant with both auto-enrolment regulations and the Retail Distribution Review.

Source Pensions 3

Ironically, the lure of being able to better govern the investment process took eyes off deficiencies in other parts of the proposition.

As it happens, the problems with Source pensions in Ireland were spotted by one of the advisers recommending Source Pensions, (someone I know to have the interests of members at his heart). He and his firm are now instrumental in rectification.

Who picks up the cost of putting things right?

We are at a stage in the purchasing cycle, where employers are still using advisers and advisers are experienced enough to sort out problems of this kind. I am sure that the advisers who recommended Source Pensions now wish they hadn’t as I expect the  rectification bill will arrive at their doorstep.

But I am more concerned about some of the smaller mastertrusts operating as qualifying workplace pension schemes which have no financial reserves for restitution, As Duncan Buchanan, one of our best pension lawyers, wrote in Pensions Expert last week.

The costs of winding up a mastertrust and distributing its assets should not be underestimated and in most cases are likely to have to be met from the members’ own retirement savings.

Accountancy practices looking at “pre-select” deals where the master trust is capable of generating management fees for themselves, should think twice. As with Source Pensions, the initial attraction of an annuity stream must be balanced against the “complicity risk’ of being associated with any failings of that trust.

As we know from previous pensions failures, it is those with the deep pockets who will be found liable. As Duncan points out, mastertrusts have no pockets, ,members have empty pockets and the risk is likely to revert to the originator of the proposal, those pre-selecting a failed arrangement,

Expensive short-cuts

In my opinion, there can be no shortcuts in the selection of a workplace pension.

Even when choosing NEST, that choice must be made with due regard to the other options available. For most small employers,  finding out who is out there offering them pensions will be a struggle. Any thought of making an informed choice without some expert guidance is deeply problematic.

Far too little has been done by Government to address these core issues. There has been an assumption that there is market capacity to provide these selection services. There isn’t.

I spent last night reading an excellent paper by  Andrew Tarrant, former adviser to Gregg McClymont, on the future of Pension Regulation in this country. He calls for a proper system of licensing workplace pensions that excludes rogue schemes from “Qualification” prior to them setting out their stalls.

I hope to publish this paper on this blog shortly.

In the meantime, you have www.pensionplaypen.com !

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Common sense needed on transfers

Thomas Paine

Whether you’re moving house or moving money, the process is fraught. We are no closer to pots following member than when the “portable personal pension” was established in 1987. The friction involved in moving money from scheme to scheme, fund to fund, asset to asset means money tends to stay where it is.

But for those wishing to consolidate their pension savings, there are  barriers to transfer that surmount these operational issues. Chief among them are the issues to do with guarantees – the guarantees surrounding the payment of a pension as opposed to lump sums. Since the cost of meeting these guarantees is determined by the markets, their value should be calculable at a market rate. But what price can you put on human longevity?

These are hard questions. It is easy to open Pandora’s box and allow pension freedoms out, but it’s harder to ensure that people get fair value from their pension savings.

These hard problems have not yet been properly addressed. We are good at making financial judgements based on critical yields but we are bad at helping with decisions demanding emotional intelligence. People’s objectives in later life do not overlay neatly onto the income streams of a conventional inflation linked joint life annuity typically offered by a defined benefit occupational pension. The success of Pension Increase Exchange programs – a form of transfer- suggests that many people would prefer more income sooner rather than higher income in their last phase of life.

And simple critical yield calculations can take no account of individual life expectancy. Should those with years or months to live, be treated as if they will live on for decades?

Depending on whether you look at the questions around transfers through a financial or emotional lens, you will get different answers on what to do.

In my experience, making decisions based on such complex judgements is extremely hard and people tend to be polarised in their behaviours. At one pole, their is a meek acceptance that to stay put and do as one’s told is prudent. At the other, we find people digging in their heels and demanding freedom. These are our insistent customers.

For most people, a balanced approach is needed. Hopefully we will find a synthesis between the polarities but there’s going to have to be some common sense applied to get there.

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Bad practice or malpractice?

michael johnson

Johnson hath spoken! Michael is one of the few people who owes the financial services industry nothing. His voice is independent and trustworthy and his latest contribution to the debate on how we fund our retirement is welcome

Pensions are afflicted by rip-off penalties.  The most egregious is an annual charge for “holding assets”, expressed as a percentage of assets which can amount to thousands of pounds per year, each year.  To be clear, what is being provided is merely a safe custody service, albeit shrouded behind proffered unsolicited research (invariably unread) as a desperate attempt to hint at value for money.  A small flat fee should suffice.  Indeed, some Stocks and Shares ISA providers, for example, charge nothing to hold client assets.  What is so different about pension pots?

The Government is, to some extent, complicit in this theft.  For decades, it has unwittingly granted a licence, in the form of the sanctity of the “pension product” tax wrapper, that has facilitated the industry’s profitable inefficiencies and rent-seeking behaviours.  The result is a bloated, inefficient, opaque, over-paid industry that is increasingly uncompetitive on the global stage.  The UK’s financial services supremacy, a precious export industry, is rapidly becoming a myth.

Meanwhile, Baroness Altmann, the new pensions minister, described the pensions industry’s post-liberalisation behaviour as “most disappointing”.  Her message needs little deciphering: the industry has been warned.  Penalty-free pension pot transfers beckon.

The language is harsh and the message plain. Value for money from a “bloated, opaque, over-paid industry” is in short supply.

The complicity of Government is an interesting charge. The charge cap which governs the accumulation phase of workplace pensions and may well be imposed on decumulation, is- if Johnson is correct – legitimising theft.

But how do you make money from a 0.75% pa charge on a “start-up workplace pension”? There are two ways.

  1. You work damned hard and wait to make your money from your endeavours
  2. You cheat and make your money from day one by charging whopping management fees to the fund.

And if you think that this cheating is illegal- think again. It is perfectly legal for any service provider, should he be permitted to submit an invoice to the manager of a workplace pension scheme for settlement from the member’s fund, provided that that invoice relates to the management of the fund.

Auditors can do it, solicitors can do it, custodians can do it – indeed the list of potential debtors to the fund is as long as a creative accountant can choose it to be. Provided there is someone in charge prepared to pay the bill, the bill will be paid – from your funds.

Which is why the current 0.75% charge cap may be no more than a front for legitimised theft. What is worse , unlike the usual larceny, you won’t notice you’ve been robbed for years to come. The impact of these bills , spread over a wide range of unit holders is seen in a drag on performance. People simply don’t worry about the performance of their funds in the early years. By the time they get round to worrying about performance, it is usually too late.

There is a very simple solution to this problem, It is called governance. Put at its simplest, fund governance is about making sure the bills submitted to the fund are reasonable and represent fair value. Every bill needs to be sensed checked as you’d expect for your expense claim .

But whereas the people who pay expenses have reason to pay attention, those who run workplace pensions may have every reason to pay a blind eye. If the manager and trustee of the pension scheme are complicit with those submitting the invoices, there is every reason to nod through costs that are simply charged to members. This is the easiest fraud in the world as it is virtually undetectable.

Which is why Government is trying to tighten up the governance of workplace pensions with a master trust assurance framework (MAF) and Independent Governance Committees. The trouble is that they are trusting in the MAF to be implemented on a voluntary basis and allowing the IGCs the freedom to do more or less as they plesase.

The number of master trusts that have adopted the MAF can be numbered on the fingers of your hands, there are hundreds of master trusts, many of them no more than shells, but all of them registered by the HMRC and therefore legitimised.

The Independent Governance Committees run by insurance companies have been in operation since April. They are too young to have done much more than establish their terms of reference. But I worry that they are so low profile as to be invisible to the average member. I know who the Chairs of these ICGs are but do you? Do you know who runs the IGC of your workplace pension (assuming it is run by an insurance company)?

The sad truth is that the system of workplace pensions is run by the Pensions Regulator with the FCA managing the IGCs. The opportunities for those looking to take money from your funds are so numerous and easy that everyone’s up for it. This is why mastertrusts are springing up like weeds on an untreated lawn. A few of these master trusts are good, but I worry that many aren’t.

I am more sanguine about insurance comapanies and their group personal pensions, if only because the barriers to entry are higher and the scrutiny of the FCA and PRA much better funded.

Andrew Warwick-Thompson (Executive at tPR for DC schemes) admitted last week that the standards for many small DC schemes would never match the high standards expected by his “best practice” guidelines.

I don’t just fear bad practice, I fear malpractice.

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The Plowman gets off his high-horse!

high horse

Yesterday I published an article that allowed me to get off my high horse about informed choiceand think pragmatically about how small employers are going to go about choosing a pension.

I reckon most people like choice , but they hate taking decisions. So most people (me included) like defaults which take the decision for us.

The defaults one way of helping people to engage with choice is to tell them they dont have to worry, if they cant decide there is always a default decision to go with

Garry Carter (the unstoppable..)

garry carter

Imagine the problem that you have if you are Garry Carter, the CEO of the Institute of Certified Bookkeepers. Youve got 30,000 bookkeepers all looking after more than 250,000 employers who are looking for help on things like RTI and auto-enrolment.

These bookkeepers like bookkeeping they dont like payroll but its part of the deal -they dont do pensions advice (either giving or receiving).

Auto-enrolment would be alright if it wasnt for all that pension stuff!

Thats what one bolshy bookkeeper told me.

Theyve been telling Garry that sort of things for years!

So what do you do if youre Garry?

Well you give your bookkeepers just what they want choice! And then when they start thinking about taking a decision you ask them if they want a bit of help

And you say that youve fixed up a simple way to apply for an Aviva Group Personal Pension which can be their qualified workplace pensions. You tell them it wont take more than 3-4 minutes to do all the paperwork(of course there isnt any paper but you are using the language they understand) and you call it ICB Pension Solutions.

Whats more, they get someone to hold their hand, a dedicated Independent Financial Adviser by the name of LEBC Group.

Going down this route is simple, everything is defaulted 3 months postponement -tier one earnings and boosh!

Whats the package look like Garry?

All the support stuff is supplied by LEBC Group webinars, marketing collateraland software that links Aviva up to whatever payroll is being used.

Heh its all in a box.

Now if you are reading this with a jaundiced eye, you might be saying-

that looks a little too good to be true, what does all that LEBC stuff cost..

Then youre right.  As in it does cost a flat initial fee and a small monthly retainer that can be as low as £5pm. ICB members can obtain details from the ICB website, they’re also eager to help non-members I’m told, so get in contact.

That may have made you think?

Think before you buy!

And this is exactly Garry wants you to do.  Its a default, but its not the only option. At the start of the process the employer is a given a choice, full market review or the Aviva option. Informed choice TPR calls it.

In yesterdays article, I suggested that any employer going down a pre-selected channel should be asked to complete a reason why statement they could send to their staff

Where an employer has chosen a workplace pension scheme, he should provide clear of evidence of why that scheme was chosen and why other options werent.

Because if one of Garrys bookkeepers cannot answer that question and be proud of that answer, I dont think theyve really made a choice.

And if the bookkeeper hasnt made the choice, you can be pretty sure that at some point the bookkeeper will be asking who has and pointing fingers at Garry.

This seems to make sense. Garry looks like he has cracked it. Hell have to find someone research the market for choice, but I might be able to help him there!


Posted in accountants, actuaries, pensions | Tagged , | Leave a comment

Getting it right on choice – a pragmatic view.

choice exit now

People like choice but are afraid of taking decisions.

This paradox has puzzled pension people for a long time. People think that having 170 fund choices on their personal pension is good news, but 90% of us make no choice at all.

There is plenty of choice of workplace pension providers but it wasn’t always so. If you’d asked most experts back in 2010 (including former BBC economics editor Hugh Pym) what auto-enrolment’s all about – they’d have said “NEST”.

NEST did a good job of unravelling itself from “auto-enrolment” and you don’t often hear people saying “we’re doing NEST” anymore. Employers are getting wise to the fact that they have choice.

I don’t think there’s been much formal research about whether they are happy to have choice, but I suspect that as they’re people, they’ll be happy to have choice but afraid of using it.

The super-employer’s pre-select

Exploiting this fundamental flaw in human nature, super employers have decided to set up default pension arrangements – pre-selected by the super-employer.

I’ve written lots about this- typically in derogatory terms; though in truth, taking choice away from people is precisely what auto-enrolment is mostly about.

Perhaps I’ve been too hasty. Perhaps we are expecting too much from small employers. Perhaps they are no more capable of choosing good from bad than their employees. Infact I think this very likely, employers being people.

The question I’ve been asking is whether we can engage these “employer people” in the importance of choosing, whether we can educate people about the choice and whether we can empower them to make a choice. I have come to the conclusion that the vast majority of these “people employers” will not be engaged, won’t get educated and won’t take any choice at all.

What can we do for such employer people? One answer is to engage,educate and empower the super employers on what makes for good. At least that would narrow down decision making to the 100,000 or so accountants and other business advisers. It might be even easier to deal with the 1000 or so trade associations or even the 100 or so payroll software providers who make the administration happen.

The trouble is that the accountants and trade associations and the payroll software providers have not engaged , got educated and found a way to take decisions on behalf of all the employers in their care.

So I don’t really put my trust in super employers.

Another answer could be to put the decision making in the hands of Government. This could mean licensing pension providers and only allowing them to offer pensions if they meet quality standards. Infact this is what is happening, though the licensing system isn’t working very well, judging by the explosion in the number of schemes being marketed to small businesses.

The Government could be even more drastic and suppress choice to one provider (NEST), or maybe a troika permed from 4 or 5 of the biggest providers in the market.

This might make choice a lot easier , but it runs the risk of market failure from one provider that could be catastrophic. The more you concentrate decisions around a small number of providers, the more likely that market failure is.

I can’t see the solution resting with Government intervention EITHER


All decisions in the final analysis – are taken by people. Employer people will, left to their own devices fall in line with the 90/10 default strategies adopted by workplace pensions and indeed by the Government. 90% of employers like their staff, will leave it to the default.

But there’s a little twist in the tail for employers. They are taking decisions on behalf of their staff. Whether they like it – they are accountable to some degree.

Where regulated financial advice is given in this country, the adviser is required by the FCA to deliver a “reason why” letter to the client. The reason why letter simply indicates why it is that a course of action has been recommended.

Maybe the balanced view on choice reverts to this.

“Where an employer has chosen a workplace pension scheme, he should provide clear of evidence of why that scheme was chosen and why other options weren’t”.

And nul points for any super-employer who provides a template for the answer!

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Boring money.

holly 2

Boring Holly Mackay

Yesterday , financial journalist and founder of the Platforum Holly Mackay, launched a new company “Boring Money”.

I like that phrase, work is boring, money is boring- there is a natural synergy there.

It’s not done to talk about either in interesting society and I imagine Holly makes for an interesting society.

As does Chris Budd, who wrote a blog recently whose idea of a pension is boringly predictable –

I’d like to put some money aside which will give me an income in my retirement. 

chris budd

Boring Chris Budd

Chris is onto his second novel, he’s as interesting as his revolutionary idea about pensions is just that, turning to what boring money can do and away from an idea that the money is in-itself interesting.

I’m not against aspiration, I went to a launch of a portfolio manager last night, the big idea was a race-fit Aston Martin around which the launch happened.

The money and the glamour came as a package. I got into the car but got stuck, I guess it was my Icarus moment.


What Peter and Zac do with money

I think people are worried when they say they are in financial services that people will think they are boring so the management of money is dressed up in fantastic terms – “wrap”, “platform” “portfolio” and “portal” are part of the mysterious vocabulary of wealth management that creates an aura of fantasy to what is a conspicuously boring process.

Doubtless, Holly – who has a capacity for the mot juste, could find the exact epithet, but I’ll use an overworked formulation  – most of the jargon surrounding wealth management is “pretentious nonsense”.


Chris’ article, which you really should read, is a refreshing alternative. He describes what he wants from his savings in terms that mean something to ordinary people. When you take the jargon away, you may end up with something prosaic, but it is at least meaningful. The business of managing money does not need to be about managing money, more properly it should be about “getting the right money , to the right people at the right time”.

The periplum of financial services – involves reconnecting with this simple truth and (for most of us) leaving the fancy cars (and words) behind.

I wrote a comment on Chris’ article , saying that he’d just described CDC and I’ve been asked to write something for financial advisers on what CDC is.

I’m afraid it’s something no more interesting than what Chris wants, a way of putting money in people’s hands, when and how they need it.

You have to be very good to make that interesting and I fear- so far – the financial services industry hasn’t wanted to be that dull. But if Chris is “everyman” – and he sounds like the man down the pub to me- I wouldn’t be surprised if the rest of us catch up with him eventually.

Good luck to Holly , like my missus, she’s clever enough to make dull interesting.

Good luck to Chris , he writes the way we really feel.

Good luck to simple boring money- may it grow and find its way into our wallets/onto our phones/out of our banks – as we want it to – in the years to come.

The old masters were seldom wrong

The old masters were seldom wrong

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GARs – a simpler way out for insurers…


This blog offers insurers a simple way out of the problem they have with Guaranteed Annuity Rates- it means paying the reserved for value of the policy rather than the (lower) investment value of the contributions.

By way of explanation..

Guaranteed Annuity Rates (GARs) are defined benefit plans. They guarantee you an income based on the value of your fund at a defined point in your life. The Equitable life’s 200 years heritage was destroyed when Roy Ransom and his colleagues forgot this.

The Equitable had assumed that the guaranteed annuity rates embedded in their policies would never bite and for decades they didn’t. Then came the hungry years for income seekers, interest rates and inflation fell and guaranteed annuity rates suddenly became attractive. But the Equitable had insufficient reserves to meet the costs of paying these annuities and the rest is history.


The fate of the Equitable has always troubled insurers, especially mutual insurers who have limited access to the capital markets to meet unforeseen cash calls (again see the Equitable Life). So any statement from a mutual insurer suggesting the rules on advice be altered to make for easier transfers from GARs need to be looked at carefully and with some suspicion.

A touch of the Equitables…


In his recent letter to Ros Altmann, quoted in full on my previous blog , Phil Loney of Royal London makes a distinction between GARs and guarantees offered from occupational pension schemes.

We do not, however, believe that this solution should be extended to those with DB pensions. The complexity of these schemes and the nature of the guarantees that apply can only be assessed and communicated by a professional adviser with the appropriate level of qualification.

I think both in the legal and moral senses, Phil is wrong here. As I started this blog by saying, GARs offer a Defined Benefit- which is a pension. The guarantees that come from insurers are – it’s true- more straightforward. They are backed by the stringent regulatory requirements, not just of the FCA and PRA but of Europe’s Solvency rules. Some would argue they are too well reserved – the impact being the low annuity rates in this country (relative to those in the United States- for instance).

The guarantees from an occupational pension scheme are varied in quality. Some of them were worthless- some people got nothing from bust DB plans prior to the Financial Assistance Scheme and its successor the Pension Protection Fund (PPF). Some of them are AAA rated – such as those offered from Government Schemes and from the largest companies in the land. In-between, the chances of the guarantees being paid, depends on an assessment of the covenant from the employer and of an evaluation of the rules of the PPF.

Frankly, to most people a guarantee is a guarantee like a bottle of wine is a bottle of wine. Most people won’t countenance paying £30 for something they can get from £5 – unless they are expert. Arguing that occupational DB plans are so far removed from insurance policies that pay guaranteed income could come back to bite insurers in the bum.

An equitable transfer policy?

The transfer value offered from a “DB pension plan” is based on the value of the benefit given up – a value that is calculated by an actuary. It is calculated on a formula but can be adjusted to reflect the scheme’s solvency (its ability to pay). If an occupational scheme is in deficit, the transfer value may be less than were it fully solvent. All this could (and in my view should) be explained when the transfer value is offered.

But the transfer value offered by an insurance company for its transfers is based on the money that is in the policy that will purchase the annuity – not on the value of the benefit given up. Since the benefit being given up is typically much higher than could be purchased by the money on offer, almost everyone with a GAR is a muppet to use it for cash. This was the point made in the previous blog.

Sacrifice your pension for the good of the insurer?

Phil’s argument to justify Royal London’s position on GARs (outlined above) is posted in the comments column of the previous blog and runs as follows;

We are a mutual so any capital released by lower take up of the GAR option still belongs to customers and flows back to them via our profit sharing mechanic.

I can confirm that Royal London are very good at returning excess profits to policyholders, a practice that is winning them many friends.


But I very much doubt that any of his customers would be prepared to give up 60% of the value of their personal policy for the good of the millions of other policyholder- not to mention the CEO who picked up a bonus last year north of £3.5m.

If Royal London want out of their GARs – and this goes for all other members of the ABI, they are going to have to buy their way out. That means offering transfer values that reflect the cost of the GAR to the insurer, not the money being used to purchase the benefit. After all, that is what the insurer is reserving for.

Pay up or shut up?

I am not saying that Royal London (or other members of the ABI) are lobbying to use the limited protection of Pension Wise to get out of their obligation. In my previous blog I was saying it is better for their customers to be told “don’t be a muppet” for free than to pay £1000 for the privilege.

However I am (now) saying, what I thought about saying a couple of days ago, that Phil is batting on a very sticky wicket (I blame the old uncovered pitches of the 70s and 80s!).

The policyholders who got GARs were generally lucky not skilled purchasers. The GARs were given away by marketing departments keen to get on the selection panels of the large actuarial firms who controlled the AVC market. Some smart policyholders always knew that the GAR offered valuable protection but most didn’t.

If you’ve got a GAR, you now have to be told about it and should be told how valuable it is. If you don’t get advice, then you should be told by Pension Wise who should also guide you to the conclusion but nobody but a muppet lets the insurer off the hook by throwing away the guarantee.

I have a GAR and would like my insurer (Zurich) to make me an offer for the guarantees well in excess of the money used to purchase the GAR.

If the insurers insist – as Phil does in his letter that

Two months into the new pensions regime it is very clear that this policy to safeguard savers with GARs is a failure

then let’s demand that insurers, like occupational pension schemes , have to pay a cash equivalent value for the benefit being given up (the annuity) and not the value of the pot.

That is the logical conclusion that my senior actuary took and I suspect it is the position that any consumer focussed Regulator would take as well.


Posted in annuity, EU Solvency II, investment, London, Pension Freedoms, pension playpen, pensions, Pensions Regulator | Tagged , , , , , , , , , | 6 Comments

MoneyHub – financial education’s future?


I met yesterday with Toby Hughes, CEO of MoneyHub, one of the very few people in financial services who I could properly call visionary.

Like most visionaries, his big idea is very simple. He and his CTO Dave Toge talked me through how he wanted to get people to love managing their money. Unlike most visionaries, he’s organised his business to deliver.


The first thing I was shown was a room in which two people were talking to each other over a laptop. One was helping the other set up a MoneyHub account. In the room next door were analysts, watching, listening and analysing what was going on.

Hughes explained to me that any technology produced could only be validated by usage.

I was led through to a vast room where young teccies hunched over screens coding, designing and quality controlling. I’ve seen such operations before but only in gaming, this was Fintech on a staggering scale.

What quickly became obvious was that what was going on in the research rooms was being directly applied by the teccies.

For once – and I really mean “for once” products were being built around what people wanted, not what someone thought they wanted.

The latest version is being built for the smartphone;- tablet and full screen versions will follow but there’s recognition that our lifestyles dictate our financial behaviours. Toby gave as an example his healthcare company – Vitality; he can see the offers that go with the core product but he’s no interest in purchasing gym memberships through Vitality’s cumbersome web-interface.

It was reported yesterday that 50% of applications for internet banking accounts fail because people find it too hard to establish their identities. We can engage people, we can educate people, but if we can’t get technology to empower people to do things, then all this is just words.

The progress of their product development is less “big bang” more “evolution”. Money Hub is a means of engaging with budgeting, self-education and personal empowerment and is somewhere on the way to getting it right.

No doubt it will always be somewhere on that way, as “right” is only as good as we can currently understand. I understand this little chart is resonating with people.


While this beauty may look good but is not so effective


I bet the vast majority of those of us in financial services would have guessed the other way round. It takes a degree of humility to bin all the work, but these guys are honest – many of their ideas don’t work. I would like to hear similar admissions from the CEOs of our insurers and fund managers who continue to build around what they want people to buy, not what people want to learn.

The crux of this is that MoneyHub is not bing paid for by taking a charge on your money. The service is paid for by monthly subscription , there are no ad-valorem fees. IMO, this is the only way to eliminate bias.


The modesty of Toby and Dave is a refreshing change from the hubris of most FinTech exponents. They recognise that though they have captured millions of financial decisions , they are only a small way to understanding how those decisions were taken and why.

The data bank they are creating has no limits, just as our understanding of human behaviour. However the method of building this understanding , using emotional as well financial intelligence, is already bearing results.

Amongst the debris of abandoned pages I was shown, were tools that were working and getting such engagement from MoneyHub users that Toby could point to them as making it to future versions of his system.

These guys are living proof that if you know what you want and want it enough, you will deliver on the vision. I came away from the meeting, buzzing, thinking how I could apply these lessons to my own business and of the people I could share this great stuff with.

Almost every conversation I have – whether with HR, Reward and pension managers, providers and politicians reverts to the three words- engage, educate and empower.

They are easy words to say, they trip off the tongue, but they are amazingly difficult to deliver, when applied to people’s personal finances.

MoneyHub is a great venture which deserves our general support. I intend to be a customer and hope that my enthusiasm can be shared with those I know, so we can turn these easy words into action.


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

Supply-side woes , buy-side goes; the disappearing pension billions

bumpkin 2

bumpkin billionaires

It’s not hard to spend a billion, not if you’re a nation that knows how to spend but finds it hard to save.

As Osborne found, a generation of planning can be unwound in a minute. Were the tax rules that surrounded the taking of pensions today, the groans of a retiring populace would be louder and perhaps we would not have a conservative majority.

Just as they were the villain of the piece when we “had to buy an annuity”, so insurers are the villains today- this time for failing to help those with retirement savings to use their pensions as bank accounts.

According to Michelle Cracknell, calls to TPAS are up to 80% but most of this increase is TPAS BAU , Pension Wise is not driving new traffic to the lines and the queries are from the pension literate looking for free advice, rather than the guidance needy.

Net outflows, finger pointing and muppet-like behaviour are the characteristics of the first three months of freedoms. Nothing much will change over the summer. Organisations like the Prudential are busy building aggregation platforms and pension payment systems that will arrive at some stage, but for the most part, the insurance company’s approach to freedoms can best be described as “lipstick on a pig”.


It’s easy for the “told you so” merchants to sit smugly on the side-lines, but difficult to find a lasting solution to the unsatisfactory situation that is emerging.

Here are three simple ways we can make things better.

Firstly we can use the workplace as a means to get simple messages across to staff to make the decisions a little easier. If you are a boss, try mailing your over 50s this link and suggesting they watch it on a private browser- or if your software allows, in the lunchbreak, It’s only 3 minutes


Secondly, ask for feedback, if only a mail. Was the video useful? Would it be helpful to get a pensions expert in to give a talk on choices?

Finally, if you’ve got a good response, ask your pension’s adviser if he or she’d like to come in and do a talk around this video to explain what is going on.

I’d offer to pay a fee and to cover their expenses. That way you don’t need to feel beholden to the adviser. As a rule of thumb, you’re able to pay up to £150 (including VAT) for financial education for staff, before the cost is regarded as a taxable benefit. Depending on the number of staff you have, you could justify the fee as a percentage of the total budget you can spend on them- with the carrot of more later if needed.


People are really interested in this stuff. They are desperate for impartial advice on what their options are. They call it advice, your advisor will call it guidance or education, as long as people aren’t being told what to do, be relaxed about this.

If you are a boss, the next 9 months are going to be the time you make the most difference, calming staff down, getting brownie points and hopefully- getting more out of your workforce in return for your investment.

If you are a pensions expert, put your best foot forward. We’ve got a load of good stuff to share with advisers, we’ve curated one presentation to slide share which has a load of slides that you can load up. You can use the video as you like – the embed code’s easy to copy and paste and works in powerpoint. The presentation is here,


I’d like to say that Financial Education will get us out of the current morass, but it won’t. It may keep us afloat but many people are and will behave like muppets and live to regret it. Many people have bought annuities and they had no choice. At least we have the choice now to get pension fit but the answer is not just better education.

The long-term answer to the problem is a default decumulation option. As Steve Webb was saying in his lap of honour, if we can’t come up with a solution for the 60% of us who don’t have the means to run drawdown but have too much in our pots to cash-out, a new choice that isn’t called “annuity” is needed.

For the silent majority of people in their fifties, sixties and seventies with money in DC pensions, the option to transfer into collective schemes that look and feel like  pensions schemes as we  used to know them, will become increasingly attractive.

I hope Ros is reading this, If you are- please put “CDC regs’ in the “top-priority” box.



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The inter web of trust

web of trust

My father did his national service in the navy. I remember him telling me why those in the navy saluted with a closed palm and those in the army with an open palm. According to my  Dad, those in the army couldn’t be trusted not to have a knife in their hand!

To all my friends in the army, I suspect my Dad was joking, though the fact I remember this from a very early age, means I learned the value of full disclosure as an infant. I have always trusted those who are open over those who demand trust by right.


This story flashed upon my inward eye, as I was reviewing a blog yesterday. I’d had a conversation with an organisation that claimed it did not operate an internet based system of disclosure (though it did run a website promoting itself and had been promoting on our linked in group).

The teaser ad, the ones that intrigue to draw you in, till you are stunned with the “big reveal” are all very well, but when we are talking about life savings, and an industry as complex as financial services, a system of web-transparency is pretty much essential.

The two objections the aggrieved parties had of my writing was that I had not carried out due diligence on them and that I had not written with the barricade of legal caveats that would have protected me (and everybody else) from defamation.

In short, I had spoken my mind and spoken as I found.


In this particular case, I had spent nearly three hours of -an admittedly wet – Saturday morning ,trying to find out about the organisation I was researching.  I had found nothing on the web but a complex set of inter connections in a very layered proposition.

The blogs I’d written had been exemplary; examples of how difficult it is for trustees and advisers to do due diligence into organisations that choose to tease but not to reveal what for me are essential details.

  • Who is behind an investment scheme?
  • Who is managing the assets?
  • What is the charging structure?
  • How do i find out more?


In a cloak and dagger world, compliance becomes a marketing tool. The very consumer protections that create pages of small print, allow for this information to be skilfully omitted from the public offering.

This approach plays to a very sophisticated audience, typically to other experts in compliance for whom the skill of a marketing proposition is in managing opaqueness without becoming uncompliant.

babel eu

The regulator’s tower of Babel?

In this cloak and dagger world, there is no means to talk of these goings on other than in veiled language, for fear t of an injunction and the legal fees that follow.

Is this the bloggers fight to fight?

In cases such as this – probably not. It is perhaps their job to ask questions and bring issues to the attention of readers who may or may not agree.

It is not the bloggers job to act as a surrogate regulator. But I think that those who write and enforce the rules, need the feedback of those who use the web, they are the eyes and ears for those who don’t have time or are constrained from discussing these issues themselves.

Personally, I don’t think that any new venture that involves managing people’s money, can be anything but web-transparent. The web is now such a source of information that we expect it, and information can so easily be posted to the web , that we must ask “why can’t I search it?”.

It is a general axiom of investing, that you should never invest in something that you cannot understand. So if you cannot find out what you need to know on a wet Saturday morning, a man’s entitled to ask “why not?”.

This begs questions which are no doubt being considered in more detail by those who protect consumers for a living. In the meantime, I will continue to do what I can – on the web – to promote good practice and question what I cannot know!

An open palm beats a closed palm.

if it can’t be searched, it can’t be trusted.

army navy


Posted in corporate governance, customer service | Tagged , , , , , , , | 3 Comments

If NEST’s web services are “free” – who’s picking up the tab?



Employers who choose NEST will be able to onboard directly from payroll assuming payroll holds the information NEST needs to set-up.

As with most things NEST do , the announcement this week that they have created a suite of web based links to allow employers to go “straight to NEST” made me happy and sad at the same time.

I’m happy that this is being done, it is what we are all doing, but I’m sorry that NEST are doing this on their own.

NEST were asked to join the PAPDIS initiative and integrate with the common data standard organised by Pensions BIB.

They chose not to and by ignoring the PAPDIS data standard and by not working with other providers, NEST is setting itself against, not working with – the rest of the market.


Better to work with than against

It may be that this announcement is as a result of work that was initiated before PAPDIS was conceived and part of a masterplan conceived at NEST’s outset. Or it may be that this is response to the problems of on-boarding they experienced in the first stage of auto-enrolment, but either way, NEST has rather sprung this on the market in a way that suggests it is more interested in getting market share, than easing the capacity crunch.

If NEST is trying to reclaim its hegemony over the 1m + decisions from SMEs and micros on which workplace pension to use, it is open to further charges of “market distortion”. If it is simply encouraging innovation in the private sector, it should be ensuring that it is linking to sites offering choice such as Financial SatNav, Pension PlayPen and Defaqto.

I speak here as Chair of the FofAE  Choices Taskforce as well as founder of Pension PlayPen. I quote the Pension Regulator’s website

It is important that the scheme you choose is well run, offers good value for money for you and your staff and that it will work with the payroll process or software you’re using, so allow plenty of time to make sure you make the right choice. Your pension provider will need certain information about the staff you’re automatically enrolling so it can set up membership of the scheme for them.

Your staff will probably have heard of automatic enrolment and may want to know more. If you haven’t done so already, now would be a good time to provide them with information. Use our raising awareness resources link below.

This does not read “GO STRAIGHT TO NEST”.


So what are NEST actually saying?

Here is the body of the press release –

‘We listened to payroll software developers and understand that the payroll process, whether managed by the employer or their adviser, is crucial to auto enrolment’s continued success. It holds all the vital information for worker assessments and contributions. Rather than duplicate work for employers, we have integrated the two processes, reducing time and complexity.’


‘NEST has been set up to support the roll-out of auto enrolment and to be ready to work at scale. NEST Web Services is a part of helping ensure we are ready for the next stages. With thousands of SMEs being brought into auto enrolment in the coming years, we need to make sure that the industry continues to innovate in order to help employers meet their duties.’


The new NEST Web Services capabilities make employer auto enrolment processes faster and more streamlined. NEST Web Services is fully flexible. Payroll developers can choose to build one or all 9 web services. NEST Web Services can be used to:


1.   Set up a new employer

Other than accepting NEST’s terms and conditions and setting up payment data, all other parts of the set-up process can be completed automatically through the payroll system.


2.   Retrieve current set-up details

Retrieves employer set-up data to ensure that data in NEST and the payroll software match.

3.   Enrol workers

Sends all worker enrolment data direct to NEST via payroll software.


4.   Update contributions

Sends NEST the earnings and contribution details for a particular contribution schedule. It will also be used to notify NEST where there won’t be contributions.


5.   Approve for payment

Sends NEST an employer’s confirmation that payment of a contribution schedule for an agreed amount will be made by the employer (Direct Credit or Debit Card) or can be collected by NEST (Direct Debit).


6.   Retrieve schedules

Retrieves a list of due and overdue contribution schedules, and their current status, from NEST.


7.   Retrieve opt-outs

Retrieves a list of members who have opted out within a selected date range from NEST.


8.   Retrieve stopped contributions

Retrieves a list of members who have instructed NEST they wish to stop contributing, within a selected date range.


9.   Retrieve refunds.

Retrieves a list of refunds made to an employer’s refund bank account from NEST.


Payroll providers who want to adopt NEST Web Services can request the technical specification from the NEST website.  NEST will also be providing a testing platform for payroll software providers to use, free of charge.


But is it really free of charge?

We must remember that the commercial advantage it is gaining in adopting this approach results from the almost unlimited development budget it has been given by the DWP. It is disappointing that rather than work with other providers to ensure that choice is available, it has chosen to go it alone- effectively snubbing Pension BIB and its Papdis initiative.

When we set out on this journey in 2010, many of us expected NEST to be the last provider standing as we faced 2016.

It isn’t; and despite the enormous loan from the DWP, it is not the obvious choice for all employers. We (pensionplaypen.com ) variously rate it top second or third best provider but for some employers NEST is totally inappropriate. 

My worry is that many employers will find it all too easy to use NEST, it is important that other providers catch up with NEST by adopting these protocols. Unlike NEST, the private sector has to do this itself – out of shareholder funds. 

Before we get carried away with NEST, we should remember that it’s debt to the DWP (thought to be north of £400m) cannot be written off. It is public money and has to be factored into ay decision to use NEST . NEST is – after all – considered to be a commercial provider competing on a level playing field.

Many SMEs and micros understand this and observe the well coined dictum “if it looks too good to be true – it probably is”.

Someone has to pay back the £400m, some of which is attributable to this “free software”. In a world where things have to be paid for, the only candidates are

1. The taxpayer- by quietly writing off the debt.

2. The employer who ends up having to pay for development costs through direct fees from NEST

3. The member- through the NEST charging structure.

We cannot really plan around a debt write off, we have to plan around 2 and 3. At a recent meeting on CDC, someone made the  point that nobody but a fool would invest in a CDC scheme that was underfunded, they would simply be buying into under-performance.

My challenge to NEST is the same. Why would I want my, my clients or my staff’s money invested into a trust whose sponsor owes £400m?

More specifically, if these services are free, who is paying for them?



Posted in NEST, Payroll, pension playpen, pensions, trustee | Tagged , , , , , , , , , , | Leave a comment

The loveliest golf course in the world (and fine Company!)


The second at the 18th

I am a very lucky man. I played 27 holes at Swinley Forest Golf Club on Thursday. On a blisteringly beautiful early June day it was quite simply the most beautiful golf course I have played (or am likely to play).


Impossibly lovely

If you want to read about this amazing place, you can do so here. The course is not publicity hungry, has no website and finding it needs GPS.


Putting for champagne

I played there thanks to Ceridian, the payroll people , who have had a golf day there for the past ten years. They were given an hour to accept a vacant spot in 2005 but are now part of   the club’s calendar.


We were looked after by Hayley who is as fair and bonny as the course! Thank you Hayley


Hayley is our leader

Certain are as extraordinary as Swinley Forest, a progressive company that put their customers first. I am not a customer or a supplier, I suppose I am an admirer.

And I like the way that Ceridian treat everyone the same. A muppet golfer like me is treated as well as an ace golf star like Centaur’s Kathleen


Kathleen – my kind of HRD

Here’s my playing partner John- who is head of Ceridian’s IT – thanks for putting up with me!


Super cool John

So thanks Swinley Forest Golf Club and thanks Ceridian, two jewels in Berkshire!



the rhodadenrons

These pictures are taken (discretely) on the day as a memory for me. I hope they give pleasure to anyone who was there on the day or who has ever played this beautiful course.

The experience in the club-house was as pleasurable as the golf itself.


The smile tells it all!

It’s all a far cry from the driving range! Talking of which, here is Chris Gayle’s sign off after his remarkable run in the T20 Blast. I’m not sure his antics would go down well at Synford Forest but they made me happy!


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Boom Bust Boom

boom bust boom

I went to the Imax this week (great cinema) to see Boom Bust Boom. I was a guest of Cardano, the Dutch fiduciary manager and I had a good time.

One thing I’ve learned about the meeja, is that if you ain’t got a beard, you’re nowhere. The only person I could see with a beard was Michael Johnson who wanted to talk about how the budget would transform pensions tax relief.

He introduced me to a bloke without a beard who I dismissed as some derelict who’d wondered in from the subway. This turned out to be a mistake as he was the Director of the film and called Terry Jones. It was explained to me that he was once a very funny man.

bill ben and terry

Fortunately, I was put right by Bill and Ben, the production men,

Bill and Ben pic_400

Bill and Ben

who’ve pointed me to check out this trailer. It appears that Terry Jones is still a very funny man.

You get the picture. The documentary’s bound for the BBC and will be coming to a TV screen near you later in the year. I think Cardano put up the money, which is pretty big of them. I had a lot of Prosecco and it was just as well Waterloo station was a short stagger from the cinema.

There are 25 economists featured in the film . 23 are men and two , Lucy Prebbles and Laurie Santos, are woman. Laurie’s the “lady working with monkeys” , which could be an alternative title for the film if you consider the Old Lady of Threadneedle Street’s central role in the 2008 banking crisis.

Monty Python was often described as a boys club with Carol Cleveland appearing as gratuitous eye candy. This film certainly had that quality about it. Fortunately I was sitting next to a lady who fed me popcorn in return for sips of my Prosecco. She found it hilarious and so did I.

It wasn’t hard, with her giggling besides me, to work out where the whole finance system had gone wrong. Too many men believing their own hype, too few women feeding them popcorn and digging them in the ribs.

We could also do with more South Park, the clips of which were highlights, together with the monkeys.  Alan Greenspan, Gordon Brown, the South Sea Bubble as well as the Bankers could do with watching this film.

They could also do with watching this excellent production (also from Cardano)

If you like that one- there’s another one after it with the good advice

If you’re a male , don’t go into the investment business.

There are some who might say that Cardano are deliberately distorting the beardless , female-less banking agenda by introducing irrelevent videos like these.

However the Pension PlayPen says we need more beards in finance, we need more women and we need more films like this to keep us honest.

If you have not listened to our latest podcast on beards, feel free to while away a wet weekend on this little beauty featuring the weirdy beardies of Quietroom.

And if you want to know what the point of all this hilarity might be, try out the Cardano education website . Don’t you love these crazy Dutchmen!

Well done Cardano, well done Terry Jones, well done Bill and Ben.

Theo Kocken – you are a top man

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Robo-up or get left behind


Robo advisors seem to get all the press but they’re just one fish within the digital ocean that financial advisors should be swimming in.

Every advisor should do a comprehensive review of their business and determine how they can improve the overall digital experience of their business both from the client standpoint and from the internal business operations standpoint.

The fact is, technology is advancing so rapidly that no aspect of an advisor’s business will remain untouched over the next few years.

Consumers are getting spoiled with services like Uber,  Netflix, and the iPhone and they expect the same level of ease and access when working with an advisor. If you don’t deliver it, you’ll lose clients to advisors who will.

What we know

We know two things right now

1. There are literally millions of working and retired people who need advice but have no trusted adviser

2. They are not going to pay along with the financial service charging model (see Paul Lewis rant)

So what have IFAs got to lose by shifting to Robo-Advice to capture this mid market?

If your cost of sale is £10 and you can charge £20, you are in business. Forget the fact that you are charging £20 for Robo-advice and £2,000 for the face-to-face version. If the £20 service can be served up two hundred  times a week you are in business.

That’s what the Pension PlayPen is, except we are not that cheap yet. To get our price down we have to invest in technology.

Invest to get your price down? You must be mad?

But that’s exactly what you have to do. Forget that plate of spaghetti stuck out the back of the hi-fi – this hi-fi adviser’s going wi-fi.

Drop your pants on price

Dropping your pants on price is only an option if you’ve got the balls to be the first mover. If you don’t get yourself to the front of the queue , you will have a low-cost offering which nobody wants. Except you’ll still be paying the development bill to get you there.

There really isn’t any alternative to Robo-ing up. In ten years there will be none of this manual processing – no fact finds , no report writing nothing. The only part of the advisory process which will involve human beings is the explanation of the solution – the Q and A.

Does this worry me?

No it doesn’t.

As I say above, there is a gap in the middle that advisers cannot service. If they can make a couple of quid out of delivering a thousand pounds of value- should that worry them. Do I think I am owed an ad valorem on every sensible decision my clients take?

Of course I don’t!

No time for losers

I’ve had it being nice to dull advisers who refuse to listen. Right now I am in no mood to pander to the mediocrity of yesterday’s aspirations.

We have 1.2 m new workplace pensions to set up, there are 450,00o people qualifying for pension freedoms each year

There are 23,000 advisers and most of them are only interested in advising the top 5% of the nation (the richest 5%).

Let’s make sure we have a solution for the squeezed middle.

Collectively yours

The Pension Plowman

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Why Paul Lewis is doing IFAs a favour.

Paul Lewis

Paul Lewis has written an article that has annoyed many IFAs. You can read it here. If you haven’t read it, you might as well now, as most of this article will only make sense if you’re familiar with Paul’s intent.

Paul Lewis chose to publish it in Money Marketing, which is mainly read by IFAs and those who use IFAs to distribute their product. The article has been placed to cause maximum disruption, the journalistic equivalent of farting in a crowded lift.

The article has succeeded on a number of levels. Comments from IFAs have been numerous and all have been uncomplimentary to Paul and his article. It has disrupted IFA BAU. Why is it so annoying?

Paul Lewis 3

Firstly, it has not actually said anything, but it has implied much – the reader has been left to draw his/her own conclusions but it’s clear that Paul Lewis thinks spending £700 on ancillary services to the purchase of an expensive washing machine is akin to spending £700 on advice around an expensive financial services product. To compare IFAs pricing model to a  plumbers has annoyed IFAs but as Paul says

Secondly it has required IFAs to look at themselves from a shared perspective to their customers. I think it very likely that those who pay for financial advice buy top of the range washing machines just as they buy pricey financial products. looking in the mirror, IFA’s don’t like what they see – and that hurts

Thirdly, Paul Lewis’ analogy is substantially apposite.  People end up paying a lot more for financial services than they thought they would do and it’s because of the hidden extras within the advisory contracts (and often within the product servicing contracts).

Paul paints an extreme picture for effect, the mirror may be a little distorted but do they think he’s any kinder on bankers, accountants, lawyers and actuaries?

The article is quite funny, I can imagine Paul at his computer grinning. I am sure he anticipated the outraged comments that have accumulated around it and I’m sure he’s grinning at those too.

Paul Lewis 4

I was an IFA for fifteen years and still see myself in the game, albeit a stage removed. The picture Paul paints is a grotesque but it’s recognisably me. And for me to think that because I’ve got “actuarial” in my title, I’m exempt from criticism would be even stupider than to say Paul is wrong!

So these lessons are for me as much as for those who are overtly criticising the article and Paul. I’m not beating myself up  – I’m gently smiling.

Lesson one

Never take yourself too seriously! It is a sure sign of the insecurity of financial advisors that they consider this an attack on them. It is not- it is an attack on IFA behaviours- or at least the bad behaviours.

Lesson two

Never mess with a good journalist, they have the Klout – quite literally. Paul Lewis is a massive influence, more influential than any IFA, right up there with Martin Lewis and Ros Altmann as a consumer influencer. He didn’t get there for nothing, more people trust Paul Lewis than trust any IFA!

Lesson three

Learn some humility, the man’s right and it’s worth learning from him. The majority of most adviser’s time is spent gaining people’s confidence – it’s called prospecting. Paul Lewis has people’s confidence and can spend all of his time advising- and being listened to.

I sit at this man’s feet, as I do the feet of Altmann and Martin Lewis and ask myself, what are they doing right , that I have been doing wrong?

Lesson four

Be thankful.

I don’t know what Paul Lewis got paid for the article but I’d be surprised if any IFA paid to read it. The reason Paul placed it in a trade mag was  for the improvement of the trade. If Paul had placed this in the Mail or on a BBC blog then there might have been cause for grievance – after all the article is deliberately oblique, you only get the points he makes, if you are in the know about IFA pricing,

Paul Lewis is doing IFAs a favour. If IFAs don’t get that, then they are doing themselves no favours.

Paul Lewis

Posted in Martin Lewis, Paul Lewis | Tagged , , , , , , , , | 6 Comments

Let my pension go!

Let my people go

Pension Fiction?

Friends Life has (in it’s new Aviva colours) decided to U-turn and not offer people the freedom of the bank account to its personal pension policyholders. Ros Altmann has laid into the insurance industry- as Pension Minister – and the Telegraph run a front page article claiming millions are being denied their fundamental pension rights.

It all sounds a little far-fetched. Even a couple of years ago this would have been dubbed the kind of pension fiction you’d have read about on this blog and laughed off as the crazed ramblings of a pension nutter. But this is Britain in mid 2015 and this is going to be the tone of the next few years.

It’s not just in the UK either.

In February, President Obama announced that the Department of Labor would re-draft a rule that would require investment professionals who advise retirement plan participants to follow a higher standard. The new proposal would require investment professionals that advise American DC retirees to act as “fiduciaries”.

As fiduciary advisors, investment professionals must recommend investment products that are in their participants’ “best interest.” The current rules require only that recommended investment products to be “suitable.” Under the more stringent fiduciary standard, advisors would need to justify recommending an investment that carries more expensive fees than other investments, or when recommending investments that may be underperforming.

What’s going on?

The new rules are designed to remove conflicts of interest. Guess what, it turns out that advisers have been recommending investments that benefit them to the detriment of policyholders.

The White House Council of Economic Advisers released a report on Feb. 23 that showed that these conflicts of interest may cost investors an average of 1 percentage point on their investment returns each year.

The Land of the Free?

What’s more – employers could be held liable for the advice of non-fiduciary consultants.

People opposed to the change point out that it would limit participants from working with the advisor(s) of their choice, and might cause them to have to pay more for investment advice.

What joins these two stories together is the emergence of a new consumerism that is being adopted in 10 Downing Street and the White House. The new consumerism is no respecter of the conventions of the pension industry. It expects the providers of financial services to not just treat customers fairly, but to put the customer first.

Let my pension go

A friend of mine tells the story of being asked to provide a communications strategy to a Bank which in 2009 was suffering a run of withdrawals from consumers worried about its safety.

The expectation that a tough new regime would be recommended that would stem the flow.

To the Bank’s astonishment, the strategy my friend came up with was to welcome the customer’s request, to facilitate the transfer and then to provide a listening ear. The listening ear followed the question “what’s worrying you?”.

The Bank reckons that , once it adopted the strategy, it retained £500m more than if it had continued blocking the flow of money.

As Ros Altmann says,

“The [pensions] industry has had over a year to prepare for the changes – and it is encouraging that some firms have risen to the challenge. But others seem to be failing to move with the times and are still acting as if nothing has changed.”

Over the past year, First Actuarial has tried to engage with a number of insurers to introduce technology  into insurers that would allow them to adopt the new freedoms and offer policyholders the freedom of a pension bank account.

We have been met by the industry’s mantra “there’s no such thing as first-mover advantage”.

Try telling that to Apple.

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When you’re 64… buy the state pension! (girls buy even earlier!)


pensioners-seaI chaired and spoke at a number of retirement income seminars last month – you may have been at one. While I was encouraged by the engagement and education of the audience in financial products, I was frustrated by the scope of the conversation.

In particular, I was surprised by how few financial advisers were talking about buying extra state pensions.

With the pensioner bond bonanza past, this is the next bonanza and the Telegraph have an article explaining why.

I won’t go into all the details as they are laid out via the link, together with a great Q&A by the evergreen Malcolm McClean.

It includes one  set of numbers from Glenn Martin (a reader) which I will quote

A man aged 65 would have to pay £22,250 to buy the maximum top-up of £25 per week. That translates into a taxable “annuity rate” of 5.84pc.

Mr Martin took the assumption – based on Government figures – that this man would live an average 22 years, to age 87. If he did so his return, after basic rate tax but excluding the effects of inflation, would be equal to 0.3pc per year on the original £22,250 investment. The return for a higher-rate taxpayer would actually be negative at –2.3pc.

Glenn Martin’s calculations are  sound but  a bit negative. The main benefits of this scheme are they provide an insurance against living too long and against inflation eating into your money.

And before we get carried away with the joys of our new single state pension, let’s remember that even the upgraded version engineered by Steve Webb is not going to provide a full state pension for everyone. (this from the GAD Quinquennial)

state pension -proportion of pensioner

So most people will need to top-up to get their full state pension (and even the full state pension is not nearly enough for most people’s immediate needs).


But enough about need – is it value for money?

If a couple wanted to buy an equivalent annuity from an insurance company, they would struggle to get a return of much more than 3% before tax, 5.84% is blinding value.

As a cold-hearted 53 year old I should urge Telegraph readers not to buy, as your purchase will result in a major bill for people like me.

This is a mammoth giveaway and I very much doubt that these rates will last, especially after I re-read the Government Actuary’s latest review of the state pension which suggest that future giveaways will be few and far between.

But being a sentimental bugger, I’ll tell any man born before April 6, 1951, and woman before April 6, 1953, to register your interest in buying the extra income by visiting the website at gov.uk/state-pension-topup or by calling 0845 600 4270 or 0345 600 4270.

You won’t be able to buy till October but that gives you the summer to think about it.

Once you’ve done your thinking- fill your boots.


Why are insurers and drawdown specialists not talking about this?

I suspect there are three reasons, none of which reflect well on the “pensions industry”

  1. We are still in love with financial products that provide us with initial and/or annuity income by way of commission. The loss of up to £45,000 of a couple’s liquid estate to purchase state pension represents a conflict of interest to many advisers. There is little ROI (return on investment) to the adviser in this.
  2. We are living in a time of deflation, it is easy to forget that we have one month of deflation in the last 720 months. The rest of the time, inflation has been a killer to real retirement income. Most people are going to have precious little inflation protection on any retirement income other than their rights to the state pension, £25 pw may not sound much, but £1300 pa of guaranteed inflation protection (triple-locked for at least five years is worth around £12,000 in itself. That’s half the £22.5k initial investment.
  3. We underestimate our longevity. The chances are we are under not over-cooking our expectations of how long we live. Insuring against the financial consequences of living longer than expected is both prudent and a source of future happiness. The state guarantee that this pension will be paid for the rest of your life makes the investment attractive to a single person, to a married couple this top-up state pension is a no-brainer.

If you are of an age and have spare cash, investing in additional state pension should be in your shopping basket.


If you need all the cash you can get right now or if you are seriously at risk of dying shortly, take it out again, but for most people this is a really sound investment and  insurance.

And higher rate tax-payers (you lucky sods!)

Don’t be put off by the negative returns for higher rate tax-payers, it’s true that you will have to pay more of your investment in tax but you are likely to live longer! If you are lucky enough to have income for the rest of your retirement of more than £42,000 per annum, you are in good shape, you’ll be paying no more national insurance and the chances are that £22,5,000 is not going to make a serious dip in your capital reservoir!

This works for higher rate tax-payers too!


Posted in actuaries, annuity | Tagged , , , , , , , , , , , , | 2 Comments

I smell a (pensions) rat – what can I do?

rat An advert appeared yesterday on the Pension Play Pen Linked In Group.. If you’re in our Group, you can see it here The organisation – Save My Pension is offering a “route to market” with the message from its Director Danny Smith 

I have meeting availability in London Central on Tues/Weds next week to discuss our pension route to market, process, systems and commercials. Availability is tight so please let me know as soon as possible

If I had the first clue about what was on offer, I might be interested. I checked out Save my Pension (a trading style of HCL consulting). They are lead generators This is what their company page told me..

We provide a free service to help you take control of your retirement provision. We can; Help you trace your preserved (also widely known as frozen) pension and, once located, provide you with a free review of its current status – Amount, charges being applied and the performance of your fund. Whether you use our tracing service or already have all your information about your preserved pension we can provide you with details of an alternative occupational pension scheme you can compare and (should you decide) transfer your preserved pension(s) to. Want advice on what to do with your pension? We can put you in touch with an independent financial adviser who will provide you with the advice you need.

I couldn’t get my head round this so Danny sent me more details

I promote an occupation pension scheme called Audax. It’s run by independent trustees solely for the benefits of its clients. It has section 280 administrator (not needed), an FCA regulated administration Comoany (not needed) and we have Beavis Morgan as our auditors. Our sponsoring employee actually has staff who are enrolled on the scheme. We do not charge for joint the scheme, there are no exit fees and the client is onky 0.75 annual with projected return of 5% net of fees.

Audax has a sponsoring employer – a  company called Refined By Ltd, situated close to Save my Pension’s Preston offices in Lancaster. Apparently Refined By has employees who are in Audax – I can see no evidence of any trading activity. The company is classified as providing IT services and was incorporated in April 2014. Because Refined By Ltd. sponsors the occupational scheme it can be registered and regulated.

The Scheme is a Registered Scheme with HMRC in accordance with Part IV of the Finance Act 2004 under PSTR number 00817080RY.

The Scheme is registered with the Pensions Regulator in accordance with the Occupational pension Schemes (Scheme Administration) Regulations 1996 and Pensions Act 2004 under PSR number 12010036.

It has legitimacy though there is nothing substantial about the use of the word occupational.

The trustees of Audax are Audax Management, the investment managers a firm called Gallium.  I have met with Gallium and am confident that they are ensuring that Audax is compliant with FCA regulations.

There is nothing about Save My Pension,Refined By, Audax or Gallium that I can point to as illegal. They have multiple registrations with the FCA and Gallium employs respected advisors and auditors.

Audax Management Ltd has been in existence for 8 months (company no 09197665). It is one of 2700 companies at its registered office- there are no details about its Directors or officers and it is the trustee of the pension.

The administration of the pension is through Gallium though the transfers seem to be operating through an IFA in East Sussex called Absolute Financial Management (trading as Blueprint for the purpose of administrating transfers). Blueprint shows as its Director – Mark Eaton – Mark is also a Director of Absolute Financial Management, BluePrint is registered at the same address as Audax.

Again, I have no reason to doubt that Mark and Absolute are acting within the law. But why should there be so many moving parts and why can I find so little to connect them?

There are many ways to provide yourself with financial security in retirement. I strongly suggest you stick to the trodden paths and think very hard about using services such as those outlined above. Transparency is key to this and I am very concerned that people should know what they are doing. The alternative investment strategy suggested on the Audax website do not encourage me.

The Trustee has identified legal financing schemes as a potential alternative investment that satisfies the investment principles.

The UK legal system is an established market place from which many other legal systems around the world take their lead.  The demand for funding in legal markets is growing and is unaffected by the core financial markets.

But  Legal Financing is not necessarily a low-risk investment, read this .

Things can go wrong as they have here…

Receivers of the troubled Axiom Legal Financing Funds have brought claims against a number of parties in London’s High Court which are “considered to have acted fraudulently” in relation to “sums up to £110m”. 

Nor am I greatly encouraged by the statements about the core strategy

The Scheme will invest in Multi-Manager investment schemes and products that are provided by, and managed by, leading investment houses and banks

Who the people are in Audax Management is not clear, they have no footprint on the web. Nor do we have any details of the funds into which your money is invested. As to what all this costs the consumer, we are left only with the most general statement of intent, that it intends to achieve an investment return of 5% after fees and charges. There are risk warnings, don’t expect to see a transfer value equivalent to what you paid in if you change your mind.

You may transfer out of the Scheme at any time, but please note you should consider investment in the Scheme as a long term investment. The Trustee would prefer Members to remain invested in the Scheme for a minimum of five years to allow the Investment Manager to build a diversified investment portfolio for all Members.

Just how this works for people wishing to exercise their pension freedoms is unclear.

Operating in the same space with Save my Pension are a host of similar organisations, marketing services that exist in the demi-monde of financial services – Smart Wealth, Mayday Pensions, FirstChoice Pensions, Castle Pension Solutions, Total Pension Review, Easy Review, Pro Money Ltd (Wise Review), Pension Protect Ltd to name but a few.

All offer free reviews, all offer alternative investment strategies and all seem to be fronted by people with a background in lead generation or debt management. We know where the problem is, we are assailed by offers to work with these people, a strong and determined Regulator must get to grips with these firms and weed out the bad apples.

But we can do little more than hope that such action will be taken. Till then we will have these annoying flies buzzing around our heads. But I fear some of these flies carry viruses which will eat into the savings of those we want to help and in so doing , destroy confidence in the pension system we are trying to rebuild. I am meeting with one of the Executive Directors of the Pension Regulator at the end of the week and hope that I can discuss this with him. I smell a rat, and that’s the best that I can do.

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IFAs and actuaries – as easy as “A Cap B”.


a rigorous analyst?


Emotional intelligence?

For half of the 30 years I’ve been advising people, I was paid by private individuals to help them take difficult financial decisions.

For the other half, I’ve been paid by employers to help their staff take difficult decisions.

This symmetry was mirrored in my working day yesterday. I spent the morning Chairing and delivering the Keynote address to a conference of IFAs in Walsall. I spent the afternoon preparing and delivering the final address to an actuarial conference in London.

Culturally, intellectually and geographically, the two group are miles apart, but in talking with these two groups have more to learn from each other than could be explained by me either from a podium or on this blog.

My message to the actuaries was that they needed to get back in touch with the people for whom they devised their pension strategies, connect with the way people think outside of Staple Inn (the home of their Institute and Faculty).

My message to the IFAs was that they need to get better organised and present themselves in a more ordered way to allow them to practice their work more effectively.

In essence I found myself asking actuaries to understand IFAs and vice versa.

It’s all very well me saying this, I am neither actuary nor IFA –  but I work for a firm that to some extent bridges the divide -we offer guidance in the workplace and I build relationships with IFAs who want to advise the members of the pension schemes we manage.

I don’t know any forum that allows these groups to meet as equals. I suspect that neither group would acknowledge the other as professionally equal but that surely is wrong.

The emotional intelligence among IFAs is matched by the analytical intelligence of actuaries and the point of my speech (and those of Dr Ian Clacher and Marcus Hurd who spoke before me at the IfOA) was that we cannot provide solutions to ordinary people without engaging with and learning about their needs.

The analytical rigour with which actuaries use data – is too little evident among IFAs. Chairing eight sessions yesterday morning over 5 hours, I could see information going in one ear and coming out of mouths at the coffee and lunch breaks “unprocessed”.

Some kind of synthesis which brings the skill-sets of each group together would be good. But I don’t see this happening too soon.

There is a lingering resentment of actuaries among advisers that goes back to the days of the pension mis-selling crisis and perhaps to the seventies (where advisers were told what to do by the actuaries of life companies).

And too many actuaries hold in IFAs in contempt for their lack of intellectual rigour and for “shady business practices” – a phrase used in my presence yesterday.

Picking up on this “shady business practice” in question, it referred to a criticism of IFAs that they create products that require the ongoing attention of IFAs to work – specifically Flex-Access Drawdown and FLUMPS. As I pointed out to those throwing rocks, this is precisely what actuaries have done with Liability Driven Investment.

In a world where everything from Robo-Advice to Self-Service Actuarial valuations can be accessed on the web, the value of individuals – those in the rooms in Walsall and Holborn-is being called into question. Whether the advice comes from actuary or adviser, it is coming from a human being.

Staring out at the serried ranks of conference goers in the two venues, I realised this was what brought them together- both in their individual groups and in a common purpose. We are all struggling to be relevant , to add value, to compete with the machines we create and operate.

A couple of years ago, I tried to advertise First Actuarial , using an advertisement that I thought might bridge the gap.


It didn’t go down well with my colleagues though it was extremely well received by financial advisers who urged me to do more in this vein.

There is a common ground between actuaries and advisers but both are going to have to get out of their current comfort zones to explore it.

Which is why I’ll look back on yesterday as defining what I’ve been about for 30+ years. Helping human beings take decisions needs human beings. People need guidance and advice and ultimately comes from a combination of the intellectual and emotional skills I saw yesterday.

A                             B

Whales and Fish

This charming Venn Diagram shows that whales and fish, co-exist and share things – most particularly water. I would argue that actuaries and IFAs share things – most particularly the desire to help people make good financial decisions.

I’d like to see a little more recognition of A cap B.

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A tax on pensions, no one saw coming.

grim reaper3

The single state pension , coming to a pensioner near you , from April 2016 is supposed to be simple. It will operate under the same rules for everyone. But that doesn’t mean that everyone will get the same pension (as this tale tells), and sadly it doesn’t mean that everyone will be winners

One group that look like losing out are the “lucky” people who were in final salary schemes that were and still are contracted out of the State Second Pension (formerly called SERPS).

When Barbara Castle introduced SERPS in 1978, employers who take the trouble to fund and manage defined benefit schemes could pay reduced rate national insurance for those in the scheme, if the scheme chose to contract out and Guarantee a Minimum Pension for the workers.

After 1988, some of the cost of index-linking was passed back to the employer, although the Government was still there to pay the top-up if and when inflation exceeded 3pc.

But, and this is the important bit, the schemes only had to be funded to guarantee a flat rate pension, they did not need to offer top-up increases on the Guaranteed pension because the State would pay these (and pick up the bill).

What’s the problem?

Under the arrangements that take effect from April 2016, these people won’t get the inflation-linking benefit any more. The Government won’t pick up the bill, and if you want your increases back, you’ll have to do it yourself, either from a drawdown arrangement or buying extra state pension (if you are allowed).

In our low-to-zero inflation age, this perk might not seem valuable. But when it comes to pensions, payable over a period of decades, it really is precious.

If a 65-year-old wants to buy an annual income for life of £10,000, without inflation proofing, it will cost about £200,000. If he wants to buy an income for life starting at £10,000 and then rising in line with inflation of 3pc, it will cost £300,000. That’s the value of index-linking.

At the moment, for those who are retired, the Government’s inflation-related contribution to their contracted-out pension is effectively made along with their basic state pension. For these people, nothing will change under the new arrangements.

But when the Government started the move to a single-tier state pension, no provision was made for making inflation-related payments to those reaching state pension age after April 2016.

Are you a loser?

Very probably yes, but possibly no – depending on the extent to which your company has been paying pension increases on your Guaranteed Minimum Pension. I know of one large scheme that thinks it has been paying these increases by mistake!

I work for a firm of actuaries, we spend a lot of our time exploring just what a scheme is or isn’t paying by way of Guaranteed Minimum Pensions. This exciting game is known as GMP reconciliation and it is played on computers by geeks.

The truth is that there has been so much to-ing and fro-ing between the DHSS/DSS/DWP and the occupational pension schemes, that many schemes are unclear whether they’re paying GMP increases and if so, how much.

The conversations are conducted in earnest nowadays as the end of contracting-out means that matters have to be drawn to a close. Long words such as “crystallisation and cessation” are bandied around, to use a more vulgar phrase “the shit is about to hit the fan”.

With the end of contracting out, the cashflow advantage to companies paying reduced rate national insurance comes to an end. This will make carrying on promising to pay the old benefit promises will become even more expensive to companies and to members.

Either contributions will go up, or the scheme will have to move to a different pension benefit structure- typically a defined contribution structure – at least for future pension rights.

The bottom line is that the end of contracting out is bad news for occupational pension schemes and bad news for most people who have been contracted out via a Guaranteed Minimum Pension.

How big a loser?

How much will they (we)  lose? That will depend on the size of their contracted-out pension, the rate of inflation and how long they live. But with inflation factored in at 2pc‑3pc, actuaries estimate the figure at up to £20,000 for men and slightly more for women, because they live longer.

Is this a cover up?

Well put it this way, if there’s a shred of comfort for Steve Webb, it’s that he’s not going to have to deal with this mess! The DWP have been, at best, economical with the truth, but since Ruth Gilbert broke this story on this blog , following great investigative work by Richard Dyson in the Daily Telegraph, I’ve been having a few conversations which suggest that the DWP have been at best “economical with the truth”.

In a former guise, this would have been food and drink for Ros Altmann, who’d have had a campaign running on this by now. I am absolutely sure that Altmann knows exactly what is going on and probably has the numbers.

It will be an early test for her, how she manages the communication of this little glitch in what has so far been a very successful project. Was this cut pre-meditated or accidental, is it a stealth tax or a bungle? That’s for Ros to assess and communicate.

What is for sure is that the Treasury will look askance at any special pleas for compensation to those losing out from the glitch. What is interesting to me is to understand to what extent state members of state funded schemes (including the civil service schemes) will be protected.

What about the public sector?

To some extent it may be better that “we’re all in it together” , as those in corporate DB schemes may find the cuts unwelcome but not unfair. If there is a sniff of ring-fencing the public sector increases, that may be another thing.

But the bigger issue is that if the cuts impact public sector DB pensions to the extent they do private sector schemes, then we can expect an outcry from unions like UNITE and UNISON on behalf of the millions of workers who have here-to-now had just about everything indexed to the hilt!



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Is auto-enrolment any more than a tax?


Speaking in Birmingham last week, former pension minister Steve Webb, commented on how hard it will be to raise the bar on employer auto-enrolment contributions from the current 1% of band earnings to 3%

To raise the bar higher still will challenge the ethos of a free-market Government whose one-in-two-out rule means that any new regulation impacting business, would need two existing rules be lost.

But, as left wing politicians, union leaders and most responsible pension experts are as one in telling us, the current minimum contributions are no more than a start. Were they to be considered adequate, they would be mis-selling the prospect of retirement income security.

There are many ways to collect money from working people and pay that money in later life. The most obvious is national insurance, which at 12% of the band of earnings, dwarfs the impact of auto-enrolment contributions. Just where is all that money going? The answer is in sustaining the welfare system we have in place and the “fund” that sits behind the pension promises we are making to current and future pensions.

During the election , there was much talk of curbing the welfare budget but unanimity that the “triple lock” on the state pension should be maintained indefinitely. This means granting everyone at least 2.5% growth on their pension each year. At the time of writing that is a “real” increase of 2.5% (inflation being zero).

But there is simply not enough being put aside to pay for these generous real increases. According to the Government Actuary’s Quinquennial Review of the National Insurance Fund’s finances, the state pension will move into a theoretical deficit from 2020.

Trevor Llanwarne , the recently retired  Government Actuary, saw the remedy for this deficit as a reduction in future pensions once auto-enrolled workplace pensions were delivering sufficient security to allow this to happen. At a macro level, at least as Llanwarne was concerned, auto-enrolment was in part a bale out for the national insurance fund and might reasonably be considered a tax.

Green shoots of financial empowerment?

But that is only to tell half the story. People have the choice to opt-out of auto-enrolment – something they cannot do with tax and national insurance. The reason for the opt-out is to avoid compulsory contributions which – it is hoped – will lead to an engagement with the savings process, a higher level of financial education and ultimately empowerment among non-savers, to take responsibility for their own finances.

In as much as auto-enrolment has delivered the country 5 million new such savers, it has been a great success. Whether we can hold on to all 5 million as their contributions increase from 1% to 4% of band earnings has yet to be tested, to push personal contributions (by default) beyond 4% is something that no-one yet has formally proposed.

Yet it seems inevitable that that will have to happen – unless that is that Britain’s economic prosperity increases at such a rate that we (like the Norwegians) have money coming out of our ears. This seems unlikely.

Or a tax on immediate consumption?

Assuming that there is no great increase in productivity that allows for wages and pension contributions to grow, it seems that contribution rates can only increase at the expense of real wage growth. There is little evidence that the increased pension contributions that have happened since the start of the auto-enrolment cycle have contributed to the decline in real wages since 2008.

David Robbins suggests that larger employers have offset the increased cost of AE against the cashflow savings of having to pay pensioners CPI rather than RPI increases.

This kind of thinking works well at an abstract level, but I’m not sure that most CFO’s think like this or budget at such a theoretical level

The Government’s latest impact assessment on employers is (according to DWP’s Charlotte Clark) is likely to show that the cost of auto-enrolment has been in line with original estimates. As it’s generally accepted that the costs of implementing auto-enrolment have been higher than those in the original assessment and the level of opt-outs lower than had been estimated, it is hard to understand how this will be. Again David Robbins offers a possible explanation.

The rate that employer’s costs are absorbed by decreases in real wages could be accelerated making the overall cost of auto-enrolment a zero sum game – a pound into the pension is a pound off the wage bill.

Again I remain unconvinced by such theoretical approach.

Such an approach could only point to auto-enrolment being a tax on immediate consumption, something practically the same as compulsion.In Australia, compulsion was introduced in just this way. Instead of wage increases, people had pension increases. This works well enough when there is wage inflation, since 2008 we have had precious little wage inflation.

Headwinds for a new Pension Minister

Ros Altmann, as any new minister should, is approaching the job with circumspection. If you watch the video on the link, you will see how central the success of auto-enrolled workplace pensions is as her measure of  success.

But Ros Altmann faces a lot of headwinds if she is to get people saving to adequate levels using workplace pensions. To recap;-

  1. We have yet to see the bulk of the contribution increases for the first 5 million “in”
  2. The second 5 million are coming from employers for whom pension saving is new – this will be tougher
  3. There is no immediate prospect for wage growth, contributions will impact take home and will not be absorbed by pay increases.
  4. Any attempt to legislate for higher contribution rates will have to get past the one in two out rule.
  5. All this is happening at a time when the state pension is being radically increased under the triple-lock, potentially putting even greater strain on the national insurance fund.

The big challenge of the next five years

As I wrote yesterday, the big pension challenge is not with the 50,000 workplace pensions that have been set up under auto-enrolment but with the 1,200,000 that haven’t. Convincing the employers of the 5m of us who have no access to a workplace pension or a contribution from our bosses, is a huge task. There are hopeful signs.

Resignation is better than insurrection! The mood at Accountex 2015 was different than in previous years, accountants and their payroll departments are accepting that AE will happen and are getting ready

But accountants see auto-enrolment as an unwelcome duty on employment which they will have to implement and manage as the employer’s agents. I do not get any sense yet that auto-enrolment is being embraced for any social benefits or as a benefit to staff welfare.

Turning a “have to” to a “want to”.

Without any obvious economic panacea, the next Government is going to have to persuade employers that being “in” is good news. The emphasis has to shift from “have to” to “want to”.

Employers need mechanisms in place that make the administration of auto-enrolment easy, efficient and without risk.

The VAT – a 20% “tax on a tax” that is currently being charged on AE services, should be waived. AE services should be VAT exempt.

Those employers that embrace auto-enrolment should be praised (as those that don’t should be fined). A Government award for “going above and beyond” as envisaged by the Pension Quality Mark is a good idea.

Above all, the Government must stress the workplace pension itself as a “good thing”, the choice of workplace pension as “important” and their proper management (via IGCs and trustees) a matter of primary interest for both the Pension Regulator and the FCA.

Finally, we must set our hearts and minds in restoring confidence in the savings process by ensuring scrupulous standards in the delivery of everything that we, on the supply side, do – to make this happen.


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Do you have to be demented to buy an annuity?

grim reaper

This tweet is not the first time I’ve heard this argument

I heard it several times at a meeting of Financial Advisers I chaired in Bristol this week. The implication is that the fully cognitive can have freedom but the door to freedom closes as your mental health disintegrates.

The hammer blows come thick and fast in later years, you lose your driving licence, you lose your home, you move to part three accommodation and then to full nursing care. And at some point, the plans you put in place maybe twenty or thirty years before and which you have managed carefully ever since are exchanged for the product you have been avoiding.

You can hear the jokes between old folk

“you know you’re on the way out when they sell you an annuity”

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The first assumption is that people with their cognitive capacity diminishing is going to consent to be assessed for the life left in them and that their families are going to be happy to sign away inheritable rights. I see the process as potentially traumatic and while it sounds good in a conference of professional, I doubt that many later life annuities will go through on the nod.

And there is a second assumption within the tweet (above), it’s the assumption that those in mental full health in later years, want the responsibility of managing their retirement savings through a drawdown product. That they want to be worrying about the financial impact of living too long, of pounds cost ravaging, of inflation and of marginal taxation decisions.

There is little evidence that anyone, other than those who advise on these things, has any desire for these freedoms. Indeed these freedoms are not freedoms are what William Blake called

“The mind-forged manacles”

For the financially illiterate, drawdown can be a life sentence of worry. The decision to purchase an annuity becomes an admission of incompetence or worse dementia. What are we doing to the dignity of old age?

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To me “pension freedom” means the freedom not to worry. Among the hundred or so advisers I listened to on Tuesday, I did not hear any talk of this. All the talk was of the binary decision – drawdown v annuity.

Of course- to advisers – drawdown is something that needs an adviser.

Talk of unadvised drawdown was considered grossly irresponsible , as if clients when they enter retirement should have their car keys taken from and the keys to their front door.

For some advisers, drawdown seems to be the financial equivalent of a wheelchair, which the adviser pushes.

The annuity becomes a terminal bonus (for the adviser), there’s no more need for the wheel-chair, the patient is confined to care and the adviser gets a one off commission for the sale of the insurance policy.

I am  nervous about pension freedoms for myself and for my generation.  Because I know how hard it is  for my parents and their generation, for whom financial decision making is relatively easy.

Many in their eighties and nineties have never completed a tax return, their budgeting is based on amounts paid into their account from insurance companies, pension scheme trustees and the state. There is no need to manage the income, managing the spending is hard enough.

For my generation, it will not be the reassurance of an insurance company or pension fund payment hitting my account, but the insecurity of a balance statement telling me of the risks I am running drawing money at my current rate, of continuing with my current investment strategy, of the inheritance tax implications of my every decision.

I’m sorry advisers, but this is not how I want to live my reclining years.

I don’t want to be dreading the arrival of my drawdown statement, I don’t want to log on fearing bad news, every time I hear the markets are down. I want to know that I can look after my family and enjoy the freedom of not having to worry about all these things.

Which does not mean I want to buy an annuity- thank you very much!

If annuities are for the demented, I’m not going to buy one of them any time soon, not so long as I keep fighting for my cognitive faculties – don’t take my keys away from me!

Why should old folks be sold dud insurance policies – just because they’re screwing up on drawdown? What kind of deal is that?

Target pensions

target pensions

This is why we need a new kind of product that gives me the freedom to enjoy my retirement without my having to throw away the keys or worry about stock markets. What I want is what my parents had, a pension paid out against a target which in good years paid a little more and in bad years paid a little less, but generally rewarded them properly for their hard work and financial prudence over their careers.

I speak with a lot of older people at the moment and ask them about risk-sharing. They entirely get the fact that there are good and bad years for financial markets and when times are tough, they will get less and will spend less. They understand the reverse is true.

Put to my parent’s generation, the idea of a risk-sharing pension which could down a little or up a little but is paid every month, is exactly what they want. Compared to an annuity or drawdown it is precisely what they most people would go for.

Which is why it is so important that we continue to legislate for collective schemes that allow people to be paid these target pensions. I am totally uninterested in CDC as a means of accumulating cash in work, I am now totally focussed on getting a non-advised alternative to drawdown and annuities for the mass market of people who do not want to worry about drawdown and the grim reaper’s regular call – with an annuity cheque.

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The tone from the top


Take a close look at the photo above, it’s taken from a Morningstar conference yesterday.

The gentleman on the left is asking the question, the women on the right are listening and the gents on the right – well – they’re just staring each other out.

Why I like working with women and for women can be summed up in this photo- to use a rather out of fashion phrase, it’s about “emotional intelligence”.

The woman in black is Katherine Garrett-Cox who won the Veuve Clicquot Business person of the year this week. the woman in the blue is Helen Morrissey of Newton, I won’t embarrass the gents.


Katherine Garrett-Cox

Garrett-Cox was on the radio this morning, waking me up to money. She talked about the tone at the top of British organisations, it is clearly predominately a male tone though that’s changing fast in some industries (fund management seems to be one of them).

The tone in my household is set by my boss, Stella, who is a successful business woman. The career path ahead of her is clearly laid out. She will very soon hit the glass ceiling and will find solace in a plethora of non-executive directors where she will fill a large organisation’s diversity target but be kept from the top jobs – CEO, CFO ,COO etc.

It is very important that the next generation of brilliant women do not get shunted into sidings. They need to be on the mainline. I’m pleased and proud to point out that the pensions mainline sees women at every station!

Yesterday I wrote about the new female-led pension hierarchy. Ros Altmann, Michelle Crachnell, Lesley Titcomb, Charlotte Clark – to whom can be added Joanne Segars of the NAPF and the all-female executive of MAS headed by Caroline Rookes. They set a tone from the top that is likely to be quite different from what we have seen in my generation.

Gender Equality was being held back , according to  Garrett-Cox by “dinosaurs” in the industry. Clearly the dinosaurs that roamed planet pension policy, are either in hibernation of extinct. It is quite nice to work in such a female dominated environment.

michelle cracknell

Michelle Cracknell – TPAS and Pension Wise


Joanne Segars -NAPF

catherine rookes

Caroline Rookes – Money Advice Service


Ros Altmann – Pensions Minister

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Charlotte Clark – DWP

lesley titcomb

Lesley Ticomb – the Pension Regulator

The tone from the top is changing. I am happy as a 53 year old public school male to stand aside and see this happen. Whether the female hegemony continues will depend on the support for this new political management team  not just from us men, but from fellow women.

When Katherine Garrett-Cox was asked on FiveLive this morning what defined the difference in tone with a female at the top, she suggested that women asked the hard questions that men didn’t.

Like why we don’t have more women like those mentioned in this article -as Executive Directors?

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We got scared

voting slip When the pencil was in my hand and I stared at those boxes, I must admit that I was scared. Not that it stopped me from voting for the party that I believed in, but because of the responsibility of participating in a political process so much bigger than me. I have had the same feeling since I was a teenager. We all get scared, but it’s the job of a conservative Government to keep us that way. Big bro Dave is the headboy and though he had a few days where he was a little more animated than head boys usually get, he and his house captains have done their job of convincing us that the knowns are better than the unknowns and the unknowns are pretty scary. And Milliband and Clegg didn’t do enough to convince us we were as safe with them, especially in Scotland, where the SNP – in practice a fiscally centrist party dressed up as “tax and spend”, got it right. They were not only safe, they had a vision. Farage had a vision, which is why he got a lot of people voting for him, it was a genuinely working class vision which appealed to a lot of chippy achievers, like my missus. So when I had that pencil in my hand, there was a little devil behind me ear, prodding me.

“Come on Henry, you’re a public schoolboy, you’ve got property , you earn a lot, come with me , uncle Dave, I’ll look after you, I’ll preserve your privilege”.

For anyone who is or aspires to be a higher rate tax payer the conservatives are the party of self-interest. They are not the party of enlightened self-interest, they are the party of the status quo (as their names suggest). Cameron’s incarnation of the conservative party has nothing to do with the radical politics of Thatcherism (which are represented by Farage). Though Cameron adopted Thatcherite policies- in particular the right to buy, Cameron’s appeal is aspirational.

“With a bit of luck and with our policies, your children can be educated as you like, live in the house that you like and afford private healthcare – we’ll take care of the rest”.

So the hard- working families with joint incomes above £50k do nicely, while Uncle Dave plugs his deficit with cuts (yet to be announced) in welfare. Those cuts won’t hurt, because you won’t know they’ve happened till too late, cutting your capacity to pay for yourself in later life, allowing local councils to be blamed for sky-high council tax that buys nothing (but to plug the holes in local government pensions), persisting with a state pension policy that is deceitful (the NI fund is likely to be bust in 2020) . This is the Tory way of making us comfortable. I suppose I should be happy. But I’m not. I’m really sad that the politicians that were addressing the future are politicians no more- Steve Webb and Gregg McClymont. If life was fair, they would be in the Lords informing whatever wet-nosed Tory we get to run pension policy on what is and isn’t going on.

Five years ago , I spent the days after the election watching in wonder as the doors opened for Steve Webb. The narrow loss of seat by Nigel Waterson, the flirtation with Labour , the coalition and finally the announcement that Webb would do the job.

This time around will be very different. Pension people will need to start afresh with  David Gawke . With Willets and Hoban no more, there is a dearth of experience on pensions within the 332 Tory MPs but at least In Gawke we have a political heavyweight with a track record of getting the better of offshore tax hooligans.

The paragraph above was written in the brief period when the FT had advised David Gawke was our new pension minister- I preserve it for for posterity

A few hours after updating the blog with the news on Gawke   I am even more gob-smacked as Ros Altmann flounces out of the consumer champion role straight in as Pension Minister. Looks like someone lined up for that job didn’t quite hold his seat.

I can’t say I’m happy to lose Steve, but Ros has been a great friend to our Pension Playpen and I’m pleased for her and pensions. She’s gong to have to deal with a few loose ends, but there is sufficient momentum in auto-enrolment for that project to continue. With her there is future for collective DC but I suspect that the carnage that will be visited upon us, when some of the craziness arising from pension freedoms unwinds , will have no immediate end.

There is a price for being fearful, fear comes at the expense of progress. voting slip

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Sturgeon will treat the commons as her House of Lords


Well I’m out of here, off to Spain for a few days to watch cars. I’m running away from the grim reality of a Tory party with untrammelled powers, with a department of pensions irresponsibility and with some Treasury minister parachuted in to manage the welfare of our pension system.

And amazingly I not only have a Jock running my football team (see above) , I will have the sweaties acting as my second line of defence against Tory imbecility.

5 weeks ago, I was in Scotland and met a lot os Scottish people who had it in mind to give us a bloody nose for Culloden, the clearances and (for those with long memories) Bannockburn too. I wrote about a chill wind from the north that would keep us honest and it now looks like 56 or so SNP MPs will be sitting in the house of commons.

My mind was set by a conversation with a learned man in the library of Innerperfray. He reminded me that the Scots are a most enlightened nation with historically high literacy rates resulting from an inclusionist policy to learning dating back to John Knox.

Compare that to the intellectual constipation that has stifled the debate down south and you, like me might welcome some fresh Scottish blood in Westminster. We could not a lot worse to listen.

Not that Westminster is the main event for the Scottish Nationalists.

For those Scottish MPs, Westiminster is about as relevant as the House of Lords. It will become, I predict a place of moderation where the SNP will be able to cause considerable mischief. They will be our Lords, either the lords of misrule or or fair government.

They will be directed by a woman, the only woman who will have political power in Britain, but that woman will not be in Westminster, she will sit in the Scottish Parliament in Edinburgh.

labour in a kilt

Amazingly, she will be able to influence the British debate while directing the affairs of Scotland.

For all the triumphalism of the Conservatives, they have engineered this. Whether by deliberate action or by happenstance, they have wiped out the Labour party not just in Scotland , but in Britain, as a party capable of power. In the process they have lost us good politicians like my friend Gregg McClymont.

The ruthless pursuit of power that has led them to ditch principle based policies for short-term vote winners leaves the Conservatives with the opportunity to savage welfare and implement the politics of the Daily Mail.

I am a Liberal, and I remember 1970 when my party got only 6 seats, I was 8 years old then. I have seen good times for the Liberals since then, moments when in alliance with the SDP when I was asked to go away and prepare for Government and moments, such as the last five years, when the Liberals were in Government.

I am very sad for the liberals and particularly for Steve Webb, the nation has not repaid the Liberals for the five years of solidity they brought to Government, they cannot imagine what the alternative would have been. We who are in pensions, know the tangible benefit of having Liberal policy guiding us forward and for Steve Webb’s legacy we should be grateful.

But to return to the Scots, I have hope. In practice, as the IFS have demonstrated through numbers, they are not the tax and spend party they have been made out to be. Their economic policies are in practice centrist, they spend on education but do not overspend (when has a Scot ever overspent).

With a Labour party that will spent the next five years looking as miserable as Milliband in Doncaster this morning, I have little hope. For the Liberals I have no hope. The only hope we have is for our elected lords from the north. They should have power, I hope and believe they use it wisely.


public debt

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Pensions, benefits and taxes – the political illusionist’s playthings (ace guest blog from Ruth Gilbert)


Perception is reality.  The reality is perception will drive voting choices. Voting choices will drive a reality which does not match the perceptions. wordsWe think we’re wise to this, but still we get blind-sided and the surprise is rarely a pleasant one. We’ve only ourselves to blame as it’s not fun spending much time thinking about it.  But today I’ve forced myself. A bit of an eye-popper.

Palm-offs and spin on the £2.5bn welfare budget savings so far

State Pension    the majority of the welfare budget

Just yesterday I spotted a palm-off I didn’t know had hit me. I thought I was quite bright. Oh, well.  It was only then did I realize a seemingly obscure element amongst the recent pension changes has made me about £20,000 worse off. It turns out this is the rough present value of the inflation protections I previously would have had for the protected rights elements of my occupational pensions. Which are fairly modest to start with. Richard Dyson, whose Telegraph article alerted me, points out this will affect millions of us who thought at least we know we are with any final salary benefits we still have left.  Not sure if I should feel better or worse to realise the hit on me comes in a bit under average for women.

I thought I knew where I was with my state pension too. In fact the new flat-rate state pension sounded great. David Cameron described it as more generous than its predecessor.  But pension consultant Malcolm MacLean points out in the FT actually overall it’s neutral initially and then less generous in the long-run. When Mr C won’t care about our votes anymore.  And it’ll be fine for him this election, as a November survey showed 79% of us either believed it would be more generous or didn’t know it wouldn’t.

But at an individual level it’s not as good as we thought in the short term either. In fact many people still seem to be in for a nasty surprise when they learn what they’ll actually be getting.

Of course there was no surprise to learn the goal-posts on age would be moved.  But then it was very surprising how NI contributions records would not be worth what we thought. Pity the poor souls who’d only clocked up 9 years, and now too late. They thought they were going to get a third and now zero. Oh well, they weren’t going to get much anyway…so what difference will that make?

And of the 60% of us who will not be entitled to the full rate when it comes out, how many will have understood how much less they would be getting? Best just not to think about it, eh?

Ending “scrounging” – and lives

Well, there was much less of scrounging as a percentage of the welfare budget than we’ve been led to believe. But the hammer to smash that (percentage) nut, has ended more than scrounging. It has ended the safety net for people who really need it. And in some cases lives.   

The DWP have been asked by MPS (and so far refused) to reveal the detail of the reviews they’ve done of 49 deaths related to benefit claim problems.  But these may be only the tip of the iceberg:


Correlation doesn’t prove causation, but it’s more than likely not total co-incidence.

Joe Ferns of the Samaritans, commenting on these figures has pointed out that men from deprived areas are 10x more likely to kill themselves than their counterparts elsewhere.

At the more visible end of the scale, it’s easy to see the social cost of welfare “reform” as measured by the GP and social worker sanctioned usage of food-banks:

Food bank

Yes, the number of vouchers really has gone up by over 40 times the 25,900 used in 2008/09.

Palm-offs and spin on the £12bn(?) welfare budget savings to come

While we’re rooting around for where welfare budget savings can be made, seeing as Ian Duncan Smith claims they haven’t worked it out yet, let’s consider where the money goes according to the BBC’s view of the OBR figures:

reality check

So more pensions squeezing by stealth or otherwise looks a candidate. The nature of the pensions changes being an attrition over the long term means the hurt to be seen would be more of a slow reveal, but no less distressing to observe, or worse, experience. And we all think “welfare budget” means “scroungers budget”, so we’ll be happy to hear that’s gone down, in blissful ignorance of the hit on our pensions too.

But the BBC Reality check article looking for where the cuts could land says “The Conservatives have already pledged to protect pensioner benefits. So the party is focusing on £125bn of unprotected welfare spending, most of which goes to people of working age.” (Well, in April 2010 before the last election, David Cameron also famously said, “We have absolutely no plans to raise VAT”. Within a year, it went from 17.5% to 20% (4 Jan 2011). 

However, if pensions are indeed protected, then it’s pretty clear to see the cuts will all fall on, well, the poor, the poorly and their carers. Often all the same thing, so at least that’s efficient.

Oh and the other thing is: can we trust it’s only £12bn of welfare that will be targeted?…..

Just a typo: we meant £21bn

Maybe it’s £21bn they’ll really need to go for from welfare if this bit from the autumn statement (near end) is to believed:


95. Economic developments, particularly in the labour and housing markets, together with implementation difficulties, have meant that the welfare savings originally expected by the Government and the OBR have not materialised in full. Welfare reforms that were originally expected by both the Government and the OBR to yield savings of £19 billion have in fact resulted in only £2.5 billion of savings.

96. The Chancellor has said that the sharp reductions in departmental spending that the OBR assume will occur after 2015-16 can be mitigated by further welfare savings: “the composition of the spending reductions would be different from that set out by the OBR because I would have a higher welfare component.” The IFS have calculated that £21 billion in welfare savings would be needed over the course of the next Parliament to achieve this objective.”

Numbers or people?

The scary thing about all this is how it’s just an arithmetical exercise with no regard to the human cost when it comes to making cuts (more positively framed as “savings”). Only when it’s a bribe are we asked to imagine how lovely it will feel. Even though it’s an illusion.

So let’s not be fooled into feeling how much better off we’ll be from the sleight of hand voter bribes “rewarding” hard-working people and homeowners, because it’s not as much as politicians of any color would have us believe.  Conversely the misery of those at the bottom of pecking order turns out to be much worse than we are encouraged to believe.

Still that’s someone else I don’t know isn’t it?  As long as I keep in good health, can find a job and no-one tricks me out of my pension. 

About the Author

Ruth Gilbert is an insurance proposition contractor in life and pensions. Ruth has more than 25 years’ insurance experience, including marketing, proposition design and technical roles. Armed with this experience, a law degree and having run her own website company, Ruth brings a unique perspective to the future of insurance propositions in the UK. 

Whilst campaigning for changes to the protection cover market-place in the UK to become relevant in today’s digital age of consumer power and under-insurance, she is working on bringing improved propositions to market via consultancy assignments and joint venture partnerships.

I suppose no job with Ros Altman for me then.

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Dear Government- “Five do’s, five don’ts” – #pensions


Pension Minister Webb – (May 2020)

For those slipping quietly into retirement in the UK the political promises are about the revaluation of your state benefits, the payment of your winter allowance and the tax treatment of your savings and income.

Whatever you have done or not done is in the past, you are retiring , winding down from the business of working and getting into the business of spending. Alex Ferguson is reported he’s having problems with all this freedom.

So it appears are the Regulators.

My little pocket book Stella gave me after her trip to Greece reads

“For excessive freedom is nothing more than excessive slavery”

Plato said that

“Pension Freedoms without well-built/well-sold product’s no freedom at all”.

I said that

2015-03-28 04.48.42

I blame Leonard Cohen for this grumpiness. Listening on an early bank holiday morning to the Grumpy Old Git makes me one too – I’ve got the mug to prove it (thanks Oliver- pictured).

Five Do’s

So here are the five things I want from a new Government to cure my ole pension blues!

    1.  The abolition of the lifetime allowance so that people can aspire to a decent retirement income from their pension savings.                                                 Flat rate relief on the way in – yes! Penalties on the way out – no!
    2. Scrap the tax on a tax. Abolish VAT for auto-enrolment services bought by micros unable to reclaim it. 
    3. The duty on employers staging auto-enrolment to choose a pension and explain to  workers why they’ve chosen as they have 
    4. An easement to allow providers to pay intermediaries a fixed fee to onboard pensions. 
    5. A commitment to legislate for collective decumulation schemes to help ordinary people spend their retirement spendings without the money running out.

These changes (most clarifications and reinforcements), I would add a further five things I’d ask a future Government to follow these five don’ts from the tower of the Pension Plowman.

Five Don’ts

  1. No further charge caps on decumulation assets. The cost of decumulating will fall organically if we can introduce collectives, but even before then , we must trust this new more transparent market to do it’s work, even the current cap is unnecessary, extending it doubly so.
  2. No changes to the auto-enrolment staging time-table. The Pension Regulator has alerted all employers to their staging date, many advisory firms are working to that timetable, please do not mess with the planning.
  3. No relenting on the miscreant firms subverting the reputation of pensions by nefarious charges to the net asset value of our pension funds (hidden charges). There is a crack in everything, that’s how the light gets in.
  4. No preferential treatment for NEST , NEST is a good pension but it is only good for certain types of employers. It should not be promoted as a one size fits all solution by Government and it should be called to account for its debt to the DWP.
  5. No change in pension minister ; with the anticipated (temporary) absence for the respected member for Cumbernauld, there is only one politician in this country that understands and promotes proper pension, that is Steve Webb. Whatever Government we have should include Steve Webb as pension minister.

Of course there are many more outside the scope of this blog. To discuss these issues and those you feel strongly about, come to our Pension PlayPen lunch on Tuesday 5th May at 12 for 12.30, the Counting House Pub, Cornhill – 200 yards East of Bank Station in the City.

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Are the conservatives the party for pensioners?



The Conservatives are due to talk this morning about how they can justify their claim that they are the party for pensioners. Look forward to promises to;

  • Maintain the triple lock
  • Increase the pensioners tax-free allowance from £6000 to £8000
  • Protect people’s assets (houses) from the costs of long-term care
  • Give those in later years the freedom to spend their pension savings as they like.

It’s well known that pensioners are valuable to politicians, they get out and vote. They are also particularly vulnerable to Government decisions on spending – on the taxation of savings and the granting of welfare.

The Conservative’s manifesto pledges for welfare spending show that relative to rival parties and in absolute terms, the Government will be spending less on welfare. While they are not explicit about which parts of the welfare budget is protected, it looks to me that the Conservatives will focus on protecting pensioners with income and assets at the expense of pensioners without income and assets.

So it would be fairer to say that the conservatives will be the party for affluent voting pensioners.

One of the reasons that voters are getting so angry with politicians this election, is that the promises are made in terms of the winners, they do not mention the losers. As mentioned in yesterday’s blog, there are some big losers in upcoming changes.

The £30bn cut (identified by the IFS) in unprotected departmental spending, not mentioned in the Conservative manifesto, could leave departments like the DWP 30% worse off than in 2010. That £30bn is on top of the £10bn cut in social security that is in the manifesto.

The only rabbit that can be pulled out of the hat is to clobber tax cheats who hide income offshore. The Conservatives promise to get £5bn back over the next term is a tired old rabbit and not one Tory HQ will be shouting about to their sponsors ( who tend to have lots of funds but don’t pay much tax).

So I’m very sceptical about the fate of the less well-off pensioners

Because we have economic data from sources such as the OBR, think-tanks like the IFS are able to  pour cold water over these conservative promises.  If the Conservatives are planning to reduce cuts in the next parliament by £26bn more than Labour, pain is going to be endured as much as explicit promises on tax.

The rhetoric doesn’t match the numbers. Nowhere is this more worrying than for those vulnerable to long-term care. Let’s be clear, the NHS is of help to those with acute medical issues (for those in old age that means the threat of death), but it is not in the business of providing long term support to those physically and mentally infirm. The money for this benefit, comes from an unprotected department, the DWP.

So the protection of the NHS, simply puts more pressure on long-term care.

If you make an explicit promise to protect people’s assets (houses) from being effectively repossessed to pay the long-term care bills…

and you give people the freedom to spend their pension savings up front….

and you demand a 30% cut in the DWP budget which is there to provide a safety net…

and you rule out filling in the resulting budget gap with new taxes (see the Conservative promise made this week – “read my lips – no new taxes”)

and you cap the value of pension savings at £1m tipping many long-living affluent pensioners into the poverty trap…

Then you can only draw one conclusion. For the most vulnerable pensioners- those in poverty of heading for it, the Conservatives are not the party of pensioners…

For the poorer pensioners, the Conservatives are the party of pensioner irresponsibility.

The pension poor will be the victims of austerity, spending cuts and depravation.

But they’ll only have themselves to blame- they’re not the pensioners who vote.

The conservatives are the party for the pensioners who vote

If you want to understand the economic arguments in this article, I can recommend you watch this long and taxing video, it may not be as much fun as Question Time, but it gives a flavour of what is being promised and what is not being said.

and again


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Do we need another pension commission? #IRSC


A call for inclusion from the pension elite?

The NAPF have launched a call for an Independent Retirement Savings  Commission. I went to hear the arguments yesterday morning and came away with a nice booklet but without much more enthusiasm for the idea than when I went in.

The trouble is that the people within the room and the people on the panel were the usual suspects. The contributors to the booklet were the usual suspects, there were no dissenting voices from the pension orthodoxy that has prevailed for years.

It was from these same offices that Joanne Segars spoke some weeks ago with her opening salvo “with auto-enrolment almost over”. Mike Cherry of the Federation of Small Business was at hand yesterday to make sure she didn’t say that again, but for the NAPF and for most of its members, auto-enrolment is now a matter of re-enrolment, the NAPF can get back to discussing knitting patterns.

If you want to see what was said from the audience search #IRSC on twitter.



The voice of the excluded? Not in this room

Before coming over, I had been engaging with the concerns of middle aged women who are concerned, confused and angry about how the state second pension might be introduced.

If you want to do the same you can by following this link . You may agree and sign the petition, you may want to look at what a group of campaigners are doing for soldiers who are losing rights to their Army Pension, over 55,000 people have signed that petition.

money saving

If a pension commission were to be inclusive and consensual, it would be to listen to the arguments of those who were doing badly out of our pension system, not those who were doing well.

My impression after 90 minutes of debate, was that an independent retirement savings commission could not do this and should not do this.

I was nearly convinced by Nigel Stanley.



Nigel Stanley and Mike Cherry nearly talked me round…

Thankfully, Nigel Stanley was on the panel. Nigel announced he would be retiring soon as the TUC’s senior spokesperson on pensions . I wish him the happy retirement he has helped so many people to. Nigel spoke eloquently and passionately about the need to protect ordinary people from pension policy.

Most importantly he pointed out that you cannot take politics our of pensions, how we treat our elderly and how we help people prepare for later years is at the very heart of politics.

Nigel’s idea for a Pension Commission was a means of holding politicians to account, not as a means of collecting data to aid political decision making to be evidenced basis.

He likened his vision for a Pension Commission as something akin to the Low Pay Commission, ensuring fairness for all. He rejected the idea of it being a pension equivalent of the Office of Budget Responsibility.

He called for it to make policy or even to lobby for policy. As a democrat, I can understand where he is coming from.

But while I agree with the need to provide protection for all those for whom the occupational pensions of the NAPF and the insurance policies of the ABI, I cannot see a need for a low paid pensions commission.

Mike Cherry spoke well on behalf of small employers staging auto-enrolment.

For a fleeting moment I toyed with the idea of a commission to oversee the ongoing workings of auto-enrolment, but as I asked the question of  Mike Cherry, I realised that this did not work either.

Another Government body, the Government doesn’t listen to?

As I left, I wondered what was wrong with what we’ve got. Anthony Hilton of the Evening Standard  had asked whether such a Pensions Commission might not be just the latest Government body the Government didn’t listen to.

It was then that I walked away from this idea. What we need is a democratic process that ensures that pensions policy gets created in the right way and is maintained by the right people. We need good civil servants, good politicians and a good process. We have to accept that we will sometimes get bad politicians making bad policy in a bad way.

But the answer to the problem is not to create an unelected pensions commission or an unelected independent retirement savings commission. The answer is for ordinary people to stand up for themselves and those around them, as those who run the campaigns for fairness for our troops and for woman’s rights to the state pension are doing.

Let’s have a debate that stars the audience

Yesterday finished for me with a great debate where the good people of Leeds launched into Cameron, Clegg and Milliband with questions that were searching- sometimes to the point of being rude. That’s how people talk in their lounges, that’s how they talk on MSE and in the comments columns of our financial websites.

As Jonathan Freedland  wrote in the Guardian, the audience was the star.

These voices are not going to be heard by any pensions commission populated by people in the room I sat in yesterday morning. Their voices will be heard through the ballot box and through the ongoing engagement with Government that keeps them honest. You can hear the noise of what Bernard Levin called the silent majority, because they are no longer silent. They are more and more vocal as technology gives them a voice.

We have an apparatus of Government that is highly sensitive, look at the way the Pension Regulator is engaging with auto-enrolment through the various interest groups that are springing up. For goodness sakes, tPR runs a highly successful linked in group! We bombard Steve Webb and Gregg McClymont with our suggestions via twitter, email and face to face.

Ultimately , we have the means to get our point across. The NAPF and ABI have doors open to them in Government, so do the TUC, the FSB and all the other interest groups represented at yesterday’s meeting.

Our political process is strong and we have open Government. We do not need Independent Retirement Savings or Pension Commission. We need good more good Government.



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Coming to terms with the new politics


Politicians and the circus that moves around them seem slow to grasp the new reality of this election – that people will vote in crowds rather than congregate around ideology.

Understanding how these crowds are developing is the business of yougov and the social media pollsters. The bookies are learning to follow the trends detected on social media and are catching up with the new patterns. Betting interest now centres on what form of coalition we will have, the bookies know that this is an election like no other, where the predicted outcome is no overall majority 1/10 on.


Yesterday’s tax lockdown announced by the Conservatives was an admission that without it, no one would trust them. But frankly with it, many won’t work with them.

So desperate is Cameron to be his own man after the election that he will roll the dice and up the political stakes. Have any of his potential partners been consulted over this? I very much doubt it. That’s because the conservatives are in denial about their chances and far from positioning themselves as a party who can work with others, are putting their next five years on auto-pilot.

Have a look at this graph produced by my extraordinary brother Mince.

It shows the bookies catching up with the academic experts in their understanding of what is actually going on.

As you can see- nothing is going on! One of the strangest things about this election is that for all their noise, the major political parties are unable to move the British electorate’s voting intentions.

In this torpid world, the media can do no more than invent interest by focussing on ever more outlandish stunts. Milliband’s cozying up to Russell Brand being a case in point.

We are now obsessing about the number of likes a party’s Facebook page has got relative to another’s. My brother reports his most popular research is around the number of mentions a politician gets on the BBC.

The harsh reality for Milliband is that he is now in Sturgeon’s pocket. If you read this article (written in Scotland), at the start of the campaign, you’d have felt that chill wind from the north.

The harsher reality for Cameron is that if he blows an outright majority for a second time, his party is unlikely to give him a third chance. For Cameron , there is no option but to throw the dice.

So while Cameron and Milliband bluster, the rest of us get on with our jobs and watch incredulous as politics becomes ever more farcical. Desperate Dave has turned from statesman to tub-thumper, the Edds grovel to every social media opportunity going.

Neither realise that after June it will not be about them. After June it will be about the support they can bring to them from Scotland, Wales and Ireland, from the environmentalists, socialists, English nationalists and the 10% of us who still think the Liberals have a job to do.

What is weird is that neither Westminster of Fleet Street can make a lot of difference. This morning the Scottish Sun came out in favour of the SNP, the Southern Sun in favour of the Conservatives, if there were other Suns, they would undoubtedly tell their stories to suit their demographics.

A reactive media is slowly getting it , but the big guns of the Tory and Labour central offices don’t. They simply can’t afford to.

So long as they continue to isolate themselves , they are running away from the reality. Those who really analyse social media and voting intentions like MJ Goodwin tell us that there is only a one in a hundred chance of Milliband getting an overall majority, the chances for Cameron are higher, but nowhere near as high as the bookies think.

With only seven days to go, I very much doubt anything will change. From now on, it is all about getting the Government you want- and for once- everyone will have a say.

For the views of “just an ordinary guy from Essex”, here’s Russell on Ed.




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What’s the cost of choice?


I and my colleagues are fascinated by financial decisions; who to take out your mortgage with, who to bank with, which ISA to choose and which pension scheme to select for your staff.

Which , Money Saving Expert and the comparison sites are able to list financial products in terms of the interest rates they offer or the stated charges but most of the time, we decide on what we know, what will happen in the first couple of years when the offer is fresh.

So often, what is good today, turns out to be bad tomorrow, the road to financial penury is littered with wrappers marked “special offer” that turned out to be too good to be true.


What’s needed is a trusted source which can provide knowledge not information, that can help people choose on a sustainable basis. To some extent, this knowledge is tied up in the brand; for me First Direct is a bank that has delivered me magnificent service over 20 years, at the same time I have banked with Lloyds and RBS who (for me) have been less good. I remember banking with Citibank at one point, they offered me some free airline tickets to join them, the tickets never turned up nor did the Bank.

My experience , added to the experiences of millions of others makes a brand like First Direct a natural choice for a certain kind of person who likes remote banking. I have never met a First Direct Bank Manager and hope I never do!

So both in terms of interest rates and charges and in terms of the quality of service, there is a common knowledge bank into which people can pick and could be summed up as brand. Think Fidelity, Legal & General , First Direct and latterly Metro Bank – think brands untainted by scandal that people say good things about. I could print a list of financial institutions that go the other way- but that would be too long for a blog!


Bank accounts, mortgages and ISAs are quite easy, not only are they relatively simple to understand but they are disposable, people to change bank accounts, switch ISAs and re-mortgage and though the experience is not always as easy as we’d like, it is within our financial compass.


Pensions are something again. They are the nocturnal beasts of the financial jungle, talked about but little understood, lurking in our financial portfolios with unrealised potential. The simplification of choice at retirement (started with the easy idea of cashing out) has done something to change this.

People want the choice to pay off a mortgage, cash in an ISA or close a bank account. Until recently, a pension was something that was just there, something you owned about which you had little control. That’s changed… as this excellent video shows.


We now have choices we never expected but they come at a choice.

An annuity gives security but it comes at the cost of income

Drawdown is good for income but comes at the cost of security

Cash is flexible but may come at the  cost of a tax bill.


And to get to the point of having these choices at retirement we need to make choices throughout our life on whether to join or opt-out of the employer’s pension, whether to make extra personal contributions, whether to use the salary sacrifice option and whether to choose funds or rely on the default option.

All of these choice come at a cost. As TS Eliot wrote

What might have been is an abstraction
Remaining a perpetual possibility
Only in a world of speculation.
What might have been and what has been
Point to one end, which is always present.

All of the decisions we take remind us of the choices we discarded. The “what would have happened ifs” persist

Footfalls echo in the memory
Down the passage which we did not take
Towards the door we never opened

Which is why , on the big decisions, it is always worth considering choices and not jumping into things. Because those memories come back to haunt you.


Over the next three years over 1 million decisions will be taken about pensions, not just for the decision maker but for the staff that he or she employs.

Those decisions will have a material impact on the choices nearly 5m people have at retirement. Some of those 1m decisions will be taken with consideration, many won’t. All of those decisions will be remembered by those affected.

The cost of taking the wrong decision may have no more than a moral impact, the judgement of staff that you didn’t give a flying f*** about their financial well-being.

The cost of taking the wrong choice may impact the retirement of the person(s) taking the decision.

In extremis, a bad decision could leave staff, employer and even the adviser in such a mess that the only beneficiaries are fraudsters and lawyers.


We are not dealing here with decisions can be easily undone. The numbers of people who switch their pensions is tiny compared to those who change mortgages, ISAs ,bank accounts, utility companies. A pension plan is a life sentence.

I find it quite extraordinary that people pay so little attention to the choice of a workplace pension.

By people I mean everyone from the Pension Regulator to the employee enrolled into one with a lot of intermediaries in between.

The difference in outcomes (apples if you refer back to the video) between a good and a bad workplace pension is huge.

http://www.pensionplaypen.com will score all the providers we research and their specific offers to you as an employer on a scale of 1-100. We measure the likely outcomes to staff, based on what we know of the staff and the provider’s offer, we measure the ease of use of the plan to the employer based on what we know or provider and payroll.

It is easy to put a cost on this choice. It is only £499 (+vat).

If you are about to choose a workplace pension, don’t leave the choice to chance, invest a small sum to get the right choice properly documented and certified.

Go to http://www.pensionplaypen.com/register


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“Thank God for the cellphone video camera”

could not talk

So spoke the lawyer representing Freddie Gray’s family at a news conference this morning.

“could not talk, could not breathe”

reads the sign on a protestor’s cardboard placard.

I’m not talking about the rights and wrongs of Baltimore- if you want to read about the day of Freddie Gay’s funeral read Mashable.  I’m interested  in the way the protest is being framed, its Vice and Buzzfeed  bringing us the news and its technology that’s doing the reporting,

Progress for black America is happening, in part, not because they can talk (for the most part their is still no voice for their indignation) but from the videos of brutality that are posted and watched by millions.

In “1984” George Orwell had a vision of a police state ruled by video surveillance. Now it’s not Big Brother watching us, but us watching Big Brother.

And it is as if America is having it’s own Black Spring. with technology being used to give those who had no way to talk, a voice,

The camera cannot lie – (well not until someone learns how to photoshop video) and the testimony of the cell-phone and the photos (such as that which heads this blog) are replacing rhetoric as the instrument of change.

 Watch out world

If technology is setting Black America free from its oppression then watch out world! The CCTV cameras that watch me from morn to night keep the streets of the City of London honest, but the same digital records can (and will) be turned on those who work within the offices that line them.

The Banks are finding that they cannot escape the scrutiny of the all watching digital eye, another £19bn. of fines is predicted in a report this morning. The same will be said of the fund managers, brokers ,traders, custodians and other intermediaries who chip away at the net asset value of our savings.

Some may think it distasteful to link brutal oppression with white collar crime, but I am not talking here about the local incidents. I am talking about progress and change – things that happen when you shine the light on things.

 Democratising information and knowledge

Technology was in the hands of the police, but now it is in the hands of those who hold the police to account.

The asymmetry of information that has allowed those who manage our money is now rebalancing itself. In a short-time, customers of the banks, fund managers and other financial stewards they employ, will have an eye to what is happening and those who are under scrutiny had better be aware of that.

Just like the police in every other American town, who will think twice before brutalising those who “could not speak- could not breath”.

Technology sets us free and  boy can it keep us honest.

black lives matter

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Aren’t pensions worth a mention in this election?




Why has there been so little comment this election campaign on pensions?

When the rabbit came out of the hat in #Budget2014, many thought the freedom of pensions was the Conservatives great “retail offer”. Has Steve Webb diluted its political impact or are the Conservatives getting cold feet?

Auto-enrolment was one of the few unequivocal public policy success stories of the past parliament. Opt-out rates have stayed low, compliance to the complicated regulations has been high and confidence in retirement savings has been increased with the numbers saving privately increasing from 30 to 49%. Why is neither Clegg nor Cameron pointing to this?

The basic state pension has been reviewed, overhauled and simplified so that next year we will have a benefits, which while not more generous, is at least comprehensible. The application of the triple lock over the term of this parliament has increased the value of the basic state pension in real terms – IN A TIME OF AUSTERITY. With the Conservatives being portrayed as the party of welfare cuts- why is more not being made of the improvements in the Basic State Pension?

There are a raft of DC reforms , most importantly around the abuses of DC pensions (commission, consultancy charging, AMDs and the lack of governance of contract based plans. All of these are consumer focussed and, other than they have reduced intermediation, well received. Consumers are getting a better deal out of the workplace pensions into which 4.5m new savers have been enrolled.

Finally, the process has been put in place for a new kind of collective pension to develop. The development is early stage as auto-enrolment was early stage in 2010. I remember many sceptics in 2010 talk about auto-enrolment in the same way as they talk about CDC today.

Those who complain about CDC also complain about giving people pension freedoms. This is totally illogical. If people cannot manage the freedom of drawdown but reject the captivity of rigid benefits (especially annuities), what do these people want but a third way?



Why is pension a non issue?

While I don’t suppose that pensions policy is touching buttons like the NHS or the fiscal deficit. it is an area of policy about which we have seen genuine changes in the past five years which demonstrate how two parties can work together to take forward policies initiated in a third party (Labour) Government. In truth none of the policies listed above has been opposed by Labour in a meaningful way.

The Shadow Pension Minister, Gregg McClymont has persevered in urging the Coalition to accelerate these policies, release NEST from its restrictions, cap the cost of pension spending and impose more stringent prescription on the charges within workplace pension savings plans.

They support CDC, improvement in the state pension and auto-enrolment (which after all was their idea).

UKIP and the SNP, the new forces in British politics have decided to leave “pensions”out of their manifestos , other than the SNP aiming to protect the state pension age at current levels (which is fair enough looking at Scottish longevity relative to that down south).

Worth mentioning pensions.

In the debates I listen to, I hear a lot of arguing and a lot of moaning from audiences about the amount of arguing.

Politicians seem to be in a vortex of self-defeating recrimination. They point to stark choices with the risks associated of taking the wrong choice being severe.

But in pensions there are no choices to be made, there is harmony, there is success.

It is worth pointing out that where the focus of the politicians is on delivering public good, consensus tends to follow. The coalition has been good for pensions and Gregg McClymont has been a party to the success.

It is very sad that Gregg looks unlikely to be able to participate (immediately) in the new Government. This is an accident of time and no reflection on Gregg or his team. If by a miracle he wins Cumbernauld, he will undoubtedly be the next pension minister and likely to be a very good one.

To those who say that politicians are all the same and that nothing good comes out of Westminster, it’s worth mentioning pensions.


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Care or hubris? – How Tesco got in such a pensions mess.

every lidl helps

Every little helps?

The right old mess that Tesco has found itself in , is blamed partially on its mishandling of its pension strategy. How can an organisation with the motto “every little counts” have such a large pension deficit? Come to think of it, what is it doing offering to insure the longevity of an itinerant and anonymous workforce?

By “itinerant and anonymous” I mean workers whose jobs are rarely central to their lives. There are of course a hardcore of Tesco professionals, but those who work on the retail floor are as disposable as the superstores which yesterday’s announcement saw consigned to the bin.

The hallowed halls of the NAPF are portraited by the pension directors of the supermarkets, not just its current chair Ruston Smith (Tescos) but such luminaries as “one f Jef the ref” Pearson (Sainsburys) and  John Ralfe of Boots. Supermarkets have long been suckers for providing pension guarantees and bragging about it.

Those that have stayed clear of insuring their staff’s longevity – Lidl, Aldi and by and large Asda, are the current winners in the supermarket price-wars that have cruched Tesco over the past three years. Walmart’s intercession put a brake on Asda and the wily WM Morrison put a break on Safeway.

While Morrisons got the kudos for introducing a defined benefit scheme for staff in 2012, in practice it was only guaranteeing a lump sum (not a lifetime income) – a smart choice with pension freedoms on the other side of the hill. Morrisons also got the marketing of its scheme right by investing in financial education on the shopfloor.

A victim of its own spin

Of course the corporate argument for these DB schemes  has been spun around the corporate and social responsibility of our supermarket giants. Last century’s philanthropists like Jesse Boot and the Cohens (the co in Tesco) leave their mark in the name but there is a massive gap between practice and reality.

Terry Leahy may have been one of Tony Blair and Gordon Brown’s kitchen cabinet but the harsh reality of supermarket economics comes down to reducing the staff costs to customer footfall ratios, grinding suppliers into suicidal deals and bringing Britain’s transport system to its knees getting stuff around the county.

Then there are those “Finest*” multi-buys.


There are few who look to Tesco as an exemplum of progress. That is why we are all secretly smug at its £6bn write down.

The dead hand of corporatism

Wherever corporate complacency sets in, lazy decisions come home to roost. It is the constant disruption of the status quo that makes organisations like Google hum. I’m humming with content that this blog has just won a thumbs up from google for its mobility (thanks word press) but pissed that I’m going to have to redesign many of the frames of http://www.pensionplaypen.com which are not mobile friendly enough.

Listening to google, I am listening to their customers, my customers of the future. I cannot stand in the way of change, I must bow to it and use it to make my business better. This is what Tesco have failed to do. That the pain isn’t being fealt even more by the shareholders is because the washing is being aired (albeit belatedly).

An Atrophied trade body

Smith-Ruston-Approved-2013-Thumbnail for for press page2

Chair – Ruston Smith of Tescos

CEO - Joanne Segars NAPF

CEO – Joanne Segars NAPF

When Joanne Segars of the NAPF began a recent talk “with auto-enrolment almost over..” the coin dropped. The pensions industry is about the past, it’s about Terry Leahy  and the vision of corporate Britain that prevailed in the 1990s. It has nothing to do with Google or Facebook or even little old Pension PlayPen.

But Tesco started out as a shop in East London, the employers still to stage auto-enrolment include the Googles and Facebooks of the 2020s.

The decision of Tesco to enroll its non-engaged workforce into a defined benefit plan when it staged auto-enrolment in 2012 now looks a monumental act of hubris, one that only three years on is having to be unwound.

The message is clear, the world has changed. We need change in pensions and that doesn’t mean relying on personal pensions to sort out the mess. Personal Pensions have not changed since they were introduced in 1987, they are themselves nearly 30 years old. They do not share pension risks any more than Tesco’s DB plan shares pension risk.

They are simply a receptacle into which employers can discard the risk they used to own, like rusty supermarket shelves are dumped into a skip.

Not just about today- it’s about tomorrow

We shouldn’t wring our hands and look backwards, we shouldn’t accept what we have today is right, we should be looking forward to the future, as Tesco’s successful competitors are doing finding new ways to satisfy customer needs.

We need to care about our customers, and in pension management that means about meeting the needs of our staff. We know what people want, all the surveys say the same thing, people want a regular income in retirement (and not the Lamborghini). Now let’s find a way to provide that, using the collective power of hundreds of thousands of workers, without mortgaging our equity with guarantees.

target pensions

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What AE’s doing to pension saving – guest blog from Richard White

piggy bank

Richard White works for Portal Financial a Rochester based IFA who are producing some really interesting stuff on pensions. This is Richard’s first blog for us and I hope we’ll be able to feature more!

Research highlighted in our blog post “What will encourage young people to plan for their retirement income?”, shows that many people in the UK are not saving enough for their retirement. The government’s auto-enrolment initiative aims to rectify this problem by increasing the number of savers and the amount of money that is being put aside for later life. The process of implementing this revolutionary change began in 2012; although it will not be complete until February 2018, we can see what impact it has had so far.

A report from the Department for Work and Pensions (DWP), Official Statistic on workplace pension participation and saving trends of eligible employees: 2004-2014, shows that the initiative has had a positive impact on pension savings in the UK. Overall figures show that from 2004 to 2012 the number of eligible people in a workplace pension scheme fell from 11.9 million to 10.7 million, down to just 55% participation. However, from 2012 to 2014 the number of people enrolled soared to 13.9 million – 70% of those eligible for a workplace scheme.

The percentage of qualifying employees enrolled into a private sector workplace pension scheme fell from 53% to 42% from 2004 to 2012, but since the staged implementation of auto-enrolment began, participation has increased to 63% with 9.2 million people now enrolled, as shown below:


The largest employers have seen the biggest increase in the number of employees in workplace pensions. This coincides with the staged implementation of auto-enrolment beginning with the largest firms. 

However, there is a large gap in participation levels between professional occupations and skilled trades: 83% of professionals are enrolled versus just 51% of skilled workers. In contrast, statistics analysed by gender show that the gap between the number of male and female employees in a workplace pension is closing:

Capture1In the private sector, 63% of eligible men and women are enrolled in a company pension and in the public sector the gender gap is now just 1%. 

Trends in pension saving

In 2014 the total amount saved by employees was £80.3 billion. Although this is an increase of £2.6 billion from 2013, the amount saved per eligible saver has declined. This is probably a result of the increased number of savers in the private sector who are likely to be making the minimum contribution.

The research conducted by the DWP clearly indicates that auto-enrolment has been a success so far, although it still
excludes the most vulnerable. The number of eligible savers that are now enrolled in a workplace pension scheme has rocketed along with the amount of money that the UK is saving. If this continues the landscape of UK pensions and retirement should be much more promising.

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“We all defer together?” – Guest Blog from Ralph Frank

hour glass

The recently announced consultation on pensions tax relief has stirred up thought and debate on the issue of incentivising long-term saving.  There are theoretical, commercial and practical aspects to be addressed in this process of defining an approach to pensions tax relief for the future.  A clear and consistent theoretical basis does, arguably, make it easier to begin to build a robust approach for implementation.

There is widespread acknowledgement that immediate consumption is preferred to deferred consumption.  This short-termism generally holds even in the face of an understanding that setting some reserves aside for periods when consumption exceeds income (e.g. retirement, unemployment, sickness etc.) is prudent.  Governments around the world have sought to address this short-termism, and encourage private provision for retirement, by providing tax incentives for savers to defer their income/consumption.  These incentives have related, to varying degrees and in different combinations, to: tax relief on contributions; favourable treatment of gains while invested; and tax breaks on benefits at/in retirement.  The general theme has been a deferral of income/consumption by the individual in exchange for a deferral of taxation by the government.

It is challenging, if not almost impossible, to achieve parity in this deferral between the individual and the state primarily as tax regimes and rates change over the course of the deferral period. The principle of mutual deferral has been sufficient to satisfy most governments.  The consultation floats the idea that that “pension contributions are taxed upfront (a “Taxed-Exempt-Exempt” system like ISAs)”.  Would it not be inconsistent of the Government to take its tax immediately while expecting its citizens not to be able to have corresponding access to their remaining income?  Granting equivalent access would then turn long-term savings into on-demand savings, albeit within a tax-exempt accumulation vehicle, likely accompanied by the issue of immediate consumption.  The experience of 401(k) savings in the United States, where pre-retirement access is permitted, is a useful guide – if one is needed.  Initial experience of the pension freedoms in the UK suggests a similar outcome (of short-termism) too.

It would be helpful to all concerned if the Government clearly set out its objectives and philosophical beliefs in undertaking the consultation.  Some principles are mentioned in the consultation document but do seem to contradict prior statements and/or actions.  Specifically, what balance is sought between:

  • Incentivising more people to make sufficient (private) retirement provision and the cost of this incentivisation. The Government’s over-riding concern, expressed in the 2015 Budget too, seems to be the quantum of tax-relief accruing to private pension provision;
  • Encouraging people to work hard and do the right thing, as the Prime Minister sought to do after the 2015 Budget, thus taking personal responsibility while then seeking to limit this encouragement (by reducing the Lifetime Allowance (“LA”)). The revised LA from April 2016 does not even support a guaranteed income in retirement, with provision for a spouse, at a level equal to National Average Earnings let alone provide incentive to strive for more;  and
  • Creating a simple and transparent system while seeking to manage the distribution of tax relief across tax payers. Tax relief is becoming increasingly complex, as most recently highlighted by the introduction of the tapered reduction of the Annual Allowance.

Automatic Enrolment (“AE”) has succeeded in reversing the decline of the number of savers making private provision for their retirement.  The number of savers making private provision will continue to increase as AE reaches its steady state by 2018, when all employers will have to provide pension arrangements to eligible employees.  The contributions that these savers make will increase over time, reaching 8% of qualifying earnings by October 2018.  This consultation has caused some uncertainty, having been announced as AE continues to gather momentum.  The Government’s ‘contribution’ via the tax break savers receive on their contributions is a driver of the momentum.

The consultation creates the opportunity for meaningful long-term improvements to be made to the system of tax relief and incentivisation for long-term saving.  Is the Government prepared to continue to defer alongside those saving or are we all in….?


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“Tax relief – what are the numbers?” Guest blog from Ralph Frank


The Government has repeatedly expressed its concern, both in the 2015 Budget (paragraph 1.232) and in the recently announced consultation on pensions tax relief, at the level of income tax forgone through the provision of pension tax relief.  This concern is compounded by Government’s claim that two-thirds of pensions tax relief currently goes to higher and additional rate taxpayers.  This split of relief is likely to fall as reductions of the Lifetime Allowance and Annual Allowance continue to bite.  I question the grounds for the Government’s concern, over both the level and distribution of tax relief, though.


HMRC has confirmed, in response to a Freedom of Information request, that it does not record whether a pension scheme is a defined benefit scheme or a defined contribution scheme.  Consequently, how is it possible to break down the tax relief provided on contributions?  This lack of granularity as to who benefits from the tax relief makes it difficult to forecast aggregate levels of future relief as well as the distribution of such relief.


Around 50% of the tax relief granted each year relates to employer contributions to occupational schemes.  A material proportion of these contributions, and related tax relief, is in respect of defined benefit schemes.  UK occupational defined benefit schemes are, in aggregate, under-funded by over £220 billion (based on the Pension Protection Fund’s (“PPF’s”) estimate at the end of June 2015.  This estimate understates the true shortfall as it is based on the restricted benefits that would be paid by the PPF rather than the full benefits promised by the underlying schemes).  Although sponsoring employers are the ultimate guarantors of these schemes, short of the schemes falling into the PPF, and consequently have to make up the shortfalls on these schemes, providing tax relief on these contributions does help ease the financial stress of making these contributions.  Reducing the tax relief potentially places under-funded defined benefit schemes, and arguably the PPF too, at further risk than is currently the case.


It is possible to more easily forecast the level and distribution of future tax relief in defined contribution schemes, if only insofar as contribution-related relief is concerned.  Restricting reliefs to (members of) defined contribution schemes only addresses part of the issue of the magnitude of pension tax relief.  Defined contribution schemes already operate under a handicap relative to defined benefit schemes in the way that the Annual Allowance and Lifetime Allowance are calculated.  Does Government want to further weaken the relative attractiveness of defined contribution schemes, at a time when these schemes deliver the bulk of future provision?


The Government does acknowledge that the income tax deferred by pensions tax relief is ultimately recovered, to an unknown extent relative to the reliefs originally granted, by income tax paid on pension income.  These income tax receipts have been rising at a rate in excess of the rate of growth in relief granted in recent years.  However, tax on pension income is not the only source of tax revenue generated by the pension-related sector.  The greater the level of savings built up within the sector, the greater the fees generated by these savings.  These fees give rise to corporation tax as well as employment and personal taxes in respect of those active in the industry.  My personal conflict of interest, as a member of the industry, is clear but this wider contribution to tax receipts does need to be factored into the debate.  I am not aware of these wider taxes having been considered to date.


The issue of taxation is often the cause of heated debate.  The current discussions around pension tax relief are no exception.  A balance needs to be found between incentivising private provision of sufficient savings for later life and the cost of such incentives, to the extent these costs can be calculated.  Current levels of provision are inadequate and worsening the situation is not in the long-term interest.  If decisions are to be taken on the basis of statistics, how about heeding Disraeli’s warning against using such data for support rather than illumination?



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Don’t you -forget about DB – guest blog from the TUC

forget about me

This blog is written by Tim Sharp of the  TUC, thanks to Hilary Salt for pointing it out and for Tim and the TUC for allowing us to republish it!

It is easy to overlook defined benefit (DB) pension schemes when so much of the talk in the pensions world is of cruises, conservatories and high-powered sports cars.

But their central role in the retirement savings of millions of people and as a crucial underpinning for the ongoing automatic enrolment reforms means that protecting and nurturing these schemes is of enormous importance.

DB schemes pay out an income in retirement based on length of service and the member’s salary. For several decades, they were the mainstay of retirement provision across the public and private sectors.

Today, defined benefit schemes are often criticised as a last perk of public sector workers. Those in the private sector have fallen victim to changing working patterns, government idiocy and corporate opportunism, and are now too easily dismissed as a legacy of a by-gone age, nothing more than a burden on the companies that sponsor them.

Yet, arguably, they play as important role in the retirement plans of today’s pensioners and today’s workers as the alternatives. Currently, more than 11 million people are receiving or will in time receive benefits from a private sector DB pension scheme.

Still around 29 per cent of employees aged over 16 are currently contributing to a private sector defined benefit scheme, according to ONS figures, albeit well down on 46 per cent in 1997. But this means occupational DB schemes represent 49 per cent of total workplace pension membership, compared to 51 per cent in various forms of defined contribution (DC) schemes whose pay-outs rely on a combination of contributions and investment returns.

More than two thirds of private sector schemes are still open to future accrual although new employees are often offered an inferior DC arrangement. Open DB schemes are particularly concentrated in certain sectors like manufacturing that feature large companies looking after stable workforces backed by a strong trade union presence to ensure workers’ interests remain to the fore. The importance of pensions to these members has been demonstrated recently when workers in the steel industry took action to defend their DB pension benefits.

But the future of DB is still rarely discussed. Companies do not want to remind new employees of the benefits that their predecessors receive. Government does not want highlight the policy errors that led to the closure of many schemes. Many in the pensions industry want to pretend that the products that are currently offer are the best imaginable. When DB does get it talked about, too often it is purely as a problem, something companies have to manage away.

Despite recent scheme closures, there are nearly two million active members of DB schemes. Another nine million people have built up DB savings or are receiving pension payments.  This is why the Pensions Commission, whose  proposals led to the introduction of auto-enrolment, predicted a rise in non-state pension income as a percentage of GDP until 2035. These substantial DB pensions savings mean that auto-enrolment has time to bed in and for savings to build up to meaningful levels.

An acceleration in DB’s decline, whether by inertia or an overt attempt to relieve business of an apparent burden, runs a high risk of sending the system out of balance and could mean more people suffering reduced standards of living in old age. The ending of contracting-out (which has been used to justify an increase in National Insurance rates) from next year has already been unhelpful in this regard.

We must also be wary of anything that undermines a scarce commodity in pensions – that of “trust”. Whether it is as dramatic as allowing DB rights to be converted en masse to another form of pension , the more subtle but still enormously damaging approach of allowing the removal of inflation-uprating, or even tinkering with retirement ages, any attempt to water down accrued benefits risks undermining faith in the wider pensions system at the very time we are trying to bring millions more people into it.

Some reassurance should be taken from our new Pension Minister’s firm stance on financial advice for those who are considering transfers from DB to DC pensions. Baroness Altmann was adamant that the £30,000 minimum pot size for advice should be lowered to minimise the chances of people giving up valuable rights without fully comprehending the consequences.  This suggests that protection of consumer rights in DB is central to her pensions philosophy.

But there are things we can do to help schemes and their sponsors. Under the Coalition government, the trade union movement and business groups united successfully to support common sense reform such as placing a statutory objective on the Pensions Regulator to minimise any adverse impact on the sustainable growth of a scheme’s sponsoring employer when setting its funding requirements.

We could do more to ensure that unreasonable burdens are not placed on schemes, and by extension sponsoring employers, to meet funding demands in the short-term that in fact only emerge over many decades. This is of particular importance at a time of record low gilt yields that have the effect of inflating deficits – another issue Baroness Altmann has been vocal on in the recent past.

As she told the Pensions Regulator in 2013: “Because pensions are long-term liabilities, it seems unwise to force firms to adjust to short-term exceptional circumstances in the way that has been happening. Once the emergency policy measures are unwound, and real (and nominal) interest rates return to more normal levels, the long-term nature of the liabilities should allow deficits to be repaired over time.”

Trade unions, business and government working together can ensure that DB pensions play their intended role over the next few decades in the retirement savings of millions and in the transition to an auto-enrolment world.

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Pension PlayPen’s response to the Treasury on pension tax-relief


The Treasury has asked eight great questions which go to the heart of how we incentivise pension saving. Here are our responses.

We haven’t formally sent these responses to the Treasury yet, so if you have any comments, please send them to henry.tapper@pensionplaypen.com or simply post them in “comments”, wherever you find this!

You’ll notice that this has already started happening and the submission is filling up with comments we’ve received over the past few days.


In our response we use some jargon (EET and TEE), this refers to when you get your tax exemptions. For those who don’t know about UK pension tax law, approved pensions allow people to get tax-relief on contributions (E), tax free growth on investments (E) but they must pay tax on their savings when they draw them (EET). The Treasury proposals are to reverse the reliefs (to TEE) so you pay tax on the contributions

We also refer to “net-pay arrangemts (NPA)” and pension “relief at source(RAS)”. Net pay is where pension contributions are paid out of gross salary so you get relief at your marginal (highest) rate,  pension relief at source gives everyone the same tax relief, higher rate tax-payers can claim back their tax separately.

Bog-off means “Buy One Get One Free”. In this context the incentive is based on how much you put in which is topped up by Government within certain limits. For instance for every pound you pay in , the Government might top up your contribution by 30p. Typically the top up would apply on a certain amount of savings.

1. To what extent does the complexity of the current system undermine the incentive for individuals to save into a pension?

The current complexity does not discourage saving, it encourages the wrong kind of saving. The tax incentives on offer are attractive to those who have adequate retirement savings and ignored by many who need to save the most.

Take as an example the misunderstandings that surround pension relief at source. A statement on one company’s pension website reads

 “you cannot get tax relief – if you do not pay tax”.

This is true of one occupational pension savings scheme which encourages members (many of whom earn below the minimum income tax threshold) to save for their future using the net-pay system. Many employees simply miss out on tax-relief that would be available under pension “relief at source”

Large employers operating net-pay taxation systems for low-paid employees, do so unchallenged by employee representatives.  Had the occupational scheme  in question offered “relief at source” many poorly paid employees would have received 20% enhancements to their pension contributions from HMRC at no expense to employees, the only downside to the employer being that higher rate tax payers would have had to wait for higher rate tax relief.

This state of affairs shows what a shambles pension taxation has become. We are not suggesting that those using net-pay are wilfully ripping off their low-earners, most “experts” are simply unaware that this is happening.

Take this comment from payroll expert Kate Upcraft.

“Most employers and particularly the micros have no idea that there are two  types of tax relief, in fact quite a lot of accountants/payroll agents don’t either so if they are advising the micros on scheme choice or worse only offering a default, people are sleepwalking into this poor choice for the NPA population.

I also think quite a lot of the junior support folk manning provider help desks don’t understand either. This has really though only become a problem since April when the tax/AE thresholds diverged, but will get much worse given the increase in the personal allowance over the next two years and just at the wrong time for the employees of micros.”

It is not just tax-relief on contributions that is causing confusion

The complexity of the annual allowance, lifetime allowance and pension input periods generates millions for lawyers, tax-advisors and pension consultants. Complexity acts as a disincentive to many people to save adequately- they just don’t know where they are, what to do and they have difficulty getting expert help at a reasonable price.

Finally there is an issue with eligibility for tax relief among those at the margins of our taxation system who are nonetheless being auto-enrolled. Again this is from Kate Upcraft

“If you have the right to work here and do pay UK tax but are subject to social security in your home country then you have no NINO in the UK and that denies you tax relief in a RAS scheme but not in NPA – and it denies you it in NEST 

I know some of the other providers are asking for dummy NINOs and hoping they might get a real one before HMRC spot it’s an invalid claim.

Equally a lot of the EU migrants here for the harvest season for example are auto-enrolled for 3 months (6 month contract minus 3 month postponement) but during that 3 months are still waiting on DWP to allocate them a NINO.

In NEST as they won’t take net contributions without a NINO they have to pay gross contributions.

DWP and HMRC need to work with providers to sort out this un level playing field so all RAS schemes can offer tax relief in year as long as a NINO is present by tax year end”.

In summary, millions of pounds of tax relief is wasted by the Treasury helping wealthy  people avoid tax. Many people are confused and scared of pensions and would rather miss out than risk getting caught out by an obscure tax rule. The tax reliefs available to the poor are often ignored, under appreciated and seldom encourage positive savings behaviours by those who need to save most.

Incentives are available to those on low earnings  who pay no tax , but this message is not getting through, we need a system that resonates with all workers , not just those with the means to take tax advice. The incentive should be linked to the payment of contributions and not be dependent on the tax or NI status of the contributor – if people are in – they get incentivised.

2. Do respondents believe that a simpler system is likely to result in greater engagement with pension saving? If so, how could the system be simplified to strengthen the incentive for individuals to save into a pension?

It’s counter-intuitive but research shows many people invest in ISAs who do not pay tax. They do so because ISAs deliver returns tax free in the future.

It’s a feature of saving that you aspire to be richer in the future than you are today. This is why people people find TEE attractive – especially if they are too poor today to be bothered by tax. 

Many people  expect to pay-tax in years to come, they do not aspire to be poor for ever – TEE suits people working to get out of pension poverty,

Because they are easier to explain, commentators like Martin Lewis promote ISAs, Martin Lewis does not promote pensions. At a recent NAPF conference he condemned the pension system as out of touch with everyday people. Part of the problem is that pensions are too hard for most people to understand

We should look to build on the success of ISAs and encourage pension savings using top-ups.

Proposals for how such incentives might work are well rehearsed. Here are some practical suggestions from payroll expert Kate Upcraft

I’d scrap NPA and RAS at the point that HMRC have got digital tax accounts live and replace it with a real time system that as pension contributions are reported

HMRC show on the taxpayer’s account (and with amendment to the Employment Rights Act – on payslips) what amount has been transferred for that tax month as a top up direct to their fund.

For DB single employer trusts the EPS file sent each month could offset ‘pension relief’ against tax/NICs paid.

This can be badged as ‘pension relief’ not tax or NI relief so is not aligned to your tax paying status or current rates of either tax or NICs but fixed as a separate rate for the year.

It could be further finessed to incentivise certain groups such as those of a certain age or earnings level – this would be easy for HMRC to do given payroll supply over 120 pieces of info per employee per month.

The self employed would have their relief added annually  once their SA return was submitted. If they wanted a more regular feed of relief to their fund, in line with employees, they could opt to real time report their income once a month or quarter.

The paper produced by the current pension minister some 13 years ago targets these incentives at low-earners and tapers reliefs to those contributing from high income. A similar system – with a “Bog-off “strap-line has been put forward by Michael Johnson. We favour this kind of incentive.

We need to be clear that ISAs and what some people are called “pension ISAs” are different things.

The tax advantages of pensions make them a better way to save for retirement but many people keep their money in ISAs as a pension substitute.  ISAs  do not provide tax free income and they don’t provide any insurance against living too long.

ISAs are working as a savings vehicle but they are not solving people’s fundamental worries about retirement.

In our answer to question 4, we explain the conditions that should apply to the pension savings vehicle in order for it to qualify for these top-up incentives.

3. Would an alternative system allow individuals to take greater personal responsibility for saving an adequate amount for retirement, particularly in the context of the shift to defined contribution pensions?

People like to see what is going on. The current system of tax relief on contributions, especially net-pay, is almost invisible to non-pension specialists. Tax-relief does not properly show up on payroll statements (payslips) nor can the tax incentive be readily identified on annual statements from providers. Even online scrutiny of your pension account doesn’t really show the impact of the tax relief.

Because it is invisible, the incentives are less valuable, particularly to those on low incomes for whom the statement “if you don’t pay tax, you don’t get tax relief” is hard coded into their financial DNA.

People on low income have less to save, but many do save long-term, as we can see from ISA saving statistics. They are desperately in need of good financial information delivered in the workplace. One educationalist has written to us

We have to improve levels of financial awareness and again digital tax accounts play a role here but allied to this transparency of data.

We need something like a ‘financial passport’ that employers could deliver if they were given more than the £150 per head/ per year benefit in kind allowance. For those employers who didn’t want to provide it, TPAS or MAS or CAB could be funded to do so.

Investors in People should  be awarded to companies that offer the passport and it needs to become a ‘an employer of choice’ PR tool reflected in things such as the “Times 100  Best Companies”. 

It has to become aspirational for employers to want employees to value what their whole reward package is worth. Because it’s what the employer is paying for and because employee engagement ensures that the investment isn’t wasted on scammers and ‘live for today’ strategies.

For tax purposes, pension saving should be like a “Super-ISA” with it being made absolutely clear that income-poor people are those who most need to and will most benefit from – pension saving.

4. Would an alternative system allow individuals to plan better for how they use their savings in retirement?

The pension minister has rightly  pointed out that an alternative TEE system does not help people create an income for those in retirement.

Such a system may mean they have a bigger retirement pot (because people choose to defer consumption and “spend their wages on later life”) but in isolation, TEE is only part of the answer.

What is also needed is a proper system of turning exempt cash into exempt income. We think that the answer to this lies in the Defined Ambition legislation in the Pension Schemes Act 2015.

We are working with Government (through the Friends of CDC) on how it could create a default means of spending tax-exempt savings in a way that does not leave people short of income in extreme old age.

This is not a call for the return to annuities, more a call for the kind of pensions that existed in the early years of the defined benefit era.

We recommend that any incentives granted to savings into a pension should be conditional on the use of those savings to secure a long-term income providing insurance against living too long (and the likely costs of extreme old age).

We do not think this should limit people’s freedom of choice at retirement. Examples of how this could be achieved include annuities, collective decumulation (DB and CDC) and planned drawdown. People would only lose their incentives if they chose to spend all their pension savings wilfully (with a view to relying on others later in life).

5. Should the government consider differential treatment for defined benefit and defined contribution pensions? If so, how should each be treated?

The principle of getting people to value the incentives to save for retirement mentioned above are as appropriate for DB as for DC.

The huge contributions made by employers to DB schemes and notionally assigned to individuals through pension accrual are often un-noticed and usually undervalued.

This is bad for the labour market as it makes it expensive to employ people in DB schemes and leads to  rancour in the workplace.  We would like people in defined benefit schemes to be aware of the (currently) tax-free benefit they receive from employers both in terms of the benefits in later life and in the cost to the employer at the point of contribution.

Moving to an alternative system which made contributions to DC taxable but excluded contributions to a DB plan would be a mistake. It would extend the pensions apartheid between employees with DB and DC pension plans.

In the long-run, the most sensible and fairest system is to make pension contributions a benefit in kind, taxable in the hands of employees .

The value of contributions can be determined by GAD and a GAD  value to DB accrual could  be simply applied (by using formulae such as  16:1 or 20;1 where the smaller number relates to the increase in accrual and the larger the taxable value of the accrual) 

It is a radical proposal which is likely to be unwelcome in sectors where DB is still universally available, but it is important, if public confidence in pensions is to be maintained , that there should not be one law for DB and one for DC.

Putting employer contributions into the personal tax net, will mean encouraging people to stay in defined benefit pension schemes in different ways. One obvious way would be a program of financial education around the value of benefits that many DB members take for granted.

6. What administrative barriers exist to reforming the system of pensions tax, particularly in the context of automatic enrolment? How could these best be overcome?

Administration should not be underestimated but nor should it become a barrier to getting tax-relief right. Many legacy  record keeping systems will not cope with a radical new regime and many schemes will have to invest in new “kit” to deal with an alternative system. This may not be a bad thing , the old kit wasn’t working particularly well.

The Pensions Regulator has  concluded that many occupational DC schemes will never have the quality features that tPR wants. TPR wants such schemes to merge into bigger schemes that have the ambition to do the job properly.

We believe that the introduction of a new tax regime would accelerate this process leading to a call for pension schemes to improve or merge. In doing so , there is an opportunity for them to do a one off data cleanse – which in many cases is long overdue.

As for insurers, the few remaining insurers in the workplace and personal pension market are now of sufficient scale to be able to absorb these costs. Clearly Government should work closely with the ABI to establish what the impact of change would be. The impact should not be passed on to members in higher member-borne charges but should be met by the shareholder or- in the case of the remaining mutuals, across the whole body of membership.

The cost to payroll administrators should also be factored in . Kate Upcraft comments

the admin burden will fall on employers and the payroll industry too, to minimise this DWP/HMRC must see them as key stakeholders and engage early and insist that the pension industry develop single interface systems akin to RTI.

7. How should employer pension contributions be treated under any reform of pensions tax relief?

One of the easiest means of avoiding the impact of tax relief is to “salary sacrifice” , the practice by which employee contributions are converted into higher employer contributions. If employer contributions were exempt from being considered a benefit in kind, employers would simply go “non-contributory” and members would move en masse to salary sacrifice.

We favour a system where employer contributions are considered a benefit in kind but were exempted up to a certain amount (similar say to the Annual Allowance system- though probably with a lower threshold). Contributions over that amount would be taxable as a benefit in kind. As mentioned above, this is the best way to deal with DB and DC.

This system would simplify the Annual Allowance and would enable the Government to ditch the Lifetime Allowance which is unfair and injurious to prudent pension savings.

It would also protect the national insurance fund which risks being depleted where salary is sacrificed. 

An alternative proposal from one payroll source may be appealing to HMRC and DWP

employer contributions may have to be subject to class 1a NICs, perhaps if they are above the combined employer and employee AE minimum or a figure fixed each year like the NEST limit

Which ever route , or combination of routes, HMRC chooses – we cannot allow salary sacrifice to be used to game the system.

8. How can the government make sure that any reform of pensions tax relief is sustainable for the future?

We cannot future-proof pensions and talk of a pension commission to guard against unwelcome future changes in taxation is fanciful.

There have been examples of Government getting tax incentives right, the PEP/ISA taxation rules being a good example. The reason we have such a complicated tax system for pensions is because it was designed for a different world.

The net pay system was never designed for all employees (as auto-enrolment is taking us), more fundamentally the EET system was designed for a world where pensions were for those who paid tax and especially higher-rate tax,

The long-term future for pensions and pension taxation is to create a system that is fair for everyone and encourages those on low incomes to save (as well as traditional savers).

We welcome the proposal to move to an incentivised TEE system  and will champion it if adopted.

It is with popular support, that these changes will be lasting.

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Pension’s day of reckoning draws nigh!


April 6th 2016 should be a date with a red circle round it on any pension’s office calendar. It’s the day when contracting-out officially comes to an end- “cessates” – is no more.

It is also the date when the two tier state pension becomes a single state pension. With the help of a fully functional Government computer system, we should all be able to access (online-ish) our entitlement to this single state pension.

Recently Ros Altmann and the DWP have been dampening down the expectations, only about a third of people retiring in 2016 will find they have a full entitlement (worth just over £150 a week) for the other two thirds there will be various deductions calculated by means of a contracting-out deduction (COD). We all have a national insurance payment record stretching back to our youths. Years in which we paid full national insurance earn us a full entitlement to the new “foundation pension” , but many of us did not pay full contributions, either because we were out of the country or paying at the reduced woman’s rate or because we were contracted out of the second state pension (formerly known as SERPS).

The way the COD is calculated is a matter for much discussion among pension geeks. The suspicion is that the Government are working hard to balance the books by working within a black box to rip people off. There is no evidence for this but it is clear that no system as broad and complex as UK pensions is going to be totally fair, we will hear much about the losers and the winners will be remarkably quiet.

Where the equation is between national insurance contributions paid and benefits received, life is relatively simple. The Government Actuary wields a mighty spreadsheet with many inputs, chief of which are time/money, inflation and changes in life expectancy.

But where the equation is between NI and the accumulated value of a pensions savings pot, or even a revalued defined benefit promise made by an employer through an occupational scheme, things get more tricky. For years, trustees have known they will have to reconcile the guaranteed minimum pensions (GMP) they are and will pay to pensioners with people’s state pension entitlements. It is a fiendishly complicated business as the division of responsibilities, especially over the payment of pension increases in retirement, changes over time.

Those members of occupational pensions relying on a combination of State Pension and GMP do at least have a simple sum, add the two together and you should get to £150 or thereabouts (all else being equal)

But what about those who contracted out with their money being paid into a savings pot. There were two ways of doing this, either your employer did it for you and invested the money into the occupational trust, or you did it for yourself and invested the money into a personal pension (usually with the help of a financial advisor). Here it is the investment value of the pension savings pot that matters. To convert this value to state pension you need to divide it by a number (a GAD factor).Let’s say for a 65 year old that number is 30. So let’s say you have a £30,000 savings pot from contracting out, that’s worth roughly £1,000 pa in terms of extra state pension. Doing rough numbers, if you have £30,000 in your contracted out pot and a state pension entitlement of £130, you’re about evens.

The problems start occurring when the numbers don’t add up. If in this example the state pension was £120 pw then there would be a shortfall of around £10pw which in cash terms equates to about £15,000, that’s a lot of money to be short of.

Why might there be a shortfall? Well it’s invariably because the investments within the fund did not perform as well as was needed to meet the guarantees from the state. When I sold contracting out, I remember people looking at performance figures and choosing Japanese funds (past performance). But even if you got the fund choice right, you still had charges. Personal pensions “Appropriate” for contracting out (APP’s) typically paid flat rate commission of 5% of the annual contribution each year but occupational pension schemes could invest in policies where the total contribution paid indemnified commission of up to 60% of the first year’s contribution (collectively)! These Contracted-Out Money Purchase schemes (COMPS) could have a charge on units purchased in the first two years of contracting out of over 5% pa.

A combination of poor investment choices and high charges means that some of these COMPS and APPs are miles off meeting the shortfall in state pension calculated by a COD for the period they were being used. That’s going to be a tough one to explain.

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