Don’t be daunted – it’s not hard (or expensive) to choose the best workplace pension for your staff

how to choose

If you are a boss, or act for a boss as an accountant, financial adviser or payroll manager, you may be getting worried about auto-enrolment.

You’ve probably had your little brown envelope from the Pension Regulator telling you that you have been allotted your own staging date.


Don’t be daunted, getting a pension in place for your staff and managing the new process called auto-enrolment is not as hard as some would make you think.

Plan ahead and use the tools available to you. The Pension Regulator has an excellent ten point plan which- providing you stick to it- should see you through.

You’ll need some help from the people who manage your payroll and you’ll need some help on the pension.

If you don’t know where to start on the pension, watch this 10 minute video.


If you want to choose a pension for real, go to

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Carfest South – your chance to wear those wellies



They’ve been lying in the back of the cupboard since you bought them. They made you feel so young- they made you feel like spring had sprung.


But you never made it to (let alone through) the Glastonbury ticket scrum and the line-ups at Leeds and Reading this weekend didn’t make much sense.


But there’s always Carfest, which is altogether nicer. It’s in posh Hampshire for a start, and it’s on a farm so you can test your recently acquired cooking skills decorating biscuits and making ice cream – and Father can learn how to flip burgers to professional standards.

And then there are the kids- Sharky and George, those ex-Etonian reprobrates will entertain them all afternoon with water-bombs fired high into the damp air from catapaults.

In short, if you are white, from the Home Counties and have 1.8 children in private education, Carfest is for you.

Music – (it ain’t what I call rock ‘n’ roll)

Friday 28th

Saturday 29th

Sunday 30th

Jools Holland

Scouting for Girls

The Boomtown Rats

The Lionels

Paloma Faith

Paul Heaton & Jacqui Abbott

Seasick Steve

Sophie Ellis-Bextor


The Feeling

Ward Thomas



Bjorn to Rock

Eddie and The Robbers

Level 42

Midge Ure

Take That

The Shires

We didn’t stay for Paloma, put off by her sneering earlier in the summer about Mums and Dads in the audience. WTF was she doing here then?

It was a Chris Evans love in and it rained enough for us to feel the wellies were a worthwhile purchase.

For some reason we found ourselves in front of the stage so if you are a fan of Dan Gillespie Sells, and what right thinking man isn’t, here are some pin-ups.

IMG_2938 IMG_2937 IMG_2929 IMG_2971

For Stella , it was all about the Smiley Car


And for me it was about the Camaro

I met her on the strip three years ago

In a Camaro with this dude from L.A.

I blew that Camaro off my back and drove that little girl away


Seasick Steve was great and so were Paul Heaton and Jacqui Abbott


Stella and I were able to demonstrate some Legal and General/First Actuarial solidarity


This is the car that Ayrton Senna drove in his first season (so nearly winning Monaco in the rain) – Tolman 1984


And this is the car that Jody Scheckter won the Formula 1 championship in in 1978


And here’s a racing Outspan orange and a racing sofa

IMG_2793 IMG_2791

And Chris Evans’ Mum was guest of honour


And I shed a little tear because I must be getting old to like this stuff. And…….

‘Cause summer’s gone and the time is right

For racing in the street’

Tonight my baby and me we’re gonna ride to the sea

And wash these sins off our hands

Rock and Roll was always a lie, Springsteen was the guy who made me see that.

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IFAs take the lead in sorting the transfer blockage.


think big


Two things I’m really looking forward to in September are threesixty’s two “Big Thinking Days”. One’s in Edinburgh and one’s in London and if you’re going, you;re in for a treat.

Threesixty are a pretty pucker outfit (IMO) and I’m  chuffed to be involved. Here’s how CEO Phil Young bills his event

There can’t be many professions subject to as much outside influence than that of the financial adviser.

threesixty’s Big Thinking Days have been put together with exactly this thought in mind.

Here’s the ‘Big’ idea …

If you were able to take a look around, and understand all the issues which were likely to shape the views of yourself and your clients, you would have a better chance of knowing how to react, when not to react, and how best to prepare and position things with your clients. It’s rare that we get a chance to take a step back, look at the bigger picture, and think about the future . . .

This is your chance!

Sadly for IFAs, their future has been shaped by legislation, they have little input into the way to lead their markets. Looking at the line-up for these events, the Big Ideas survive, this is not just a marketing jamboree for the insurers , fund and platform managers.

big idea

One Big Idea – addressing transfer values

We’ve been providing actuarial input and our client feedback to threesixty for six months now as they make a concerted bid to shift regulatory emphasis governing the transfer of defined benefits. The “Big Idea” that threesixty has, is that the primary driver should be what the customer wants  and this should be informed by the Transfer Value Analysis rather than governed by it.

Currently, the analytical process makes decisions black or white, you either have a transfer value that is sufficient to cover the guarantees given up – or you haven’t. The measure of that is known as the critical yield and this is calculated using similar assumptions to those operated in calculating the transfer in the first place.

As we all know,  the process of paying a pension from a defined benefit scheme is less expensive than replicating this process using an individual annuity. Were the guarantee from the defined benefit as good as the guarantee from the life company, it would not make economic sense to transfer.

Any system based on a like for like comparison is always going to favour leaving the money in the DB scheme. This is what the TVAS system does, and it makes pariahs out of advisers who pursue the right to transfer and turns people who are determined to transfer their rights into insistent customers.



Is the law an ass?

By no means.  We need an extra layer of protection to make sure people properly engage in what they are giving up and recognise the nature of the risk transfer.

We also need to protect people from scammers who are using pension freedoms (and even the scorpion campaign) as a front to steal their money,

The law is not an ass, but it makes an ass of advisers who are unable to pursue legitimate lines of advice because of the threat of action from their Regulator, from the Financial Ombudsman and from their Professional Indemnity (PI) insurers.

So how does the Big Idea turn out in practice

What threesixty are doing, and this is largely down to Phil Young’s vision and Russell Facer’s expertise, is creating space for suitably qualified advisers to act in, just as actuaries have. Space where, subject to the agreement of the insurers, regulators and ombudsmen, they can advise in what the Americans call a “safe harbour”.

They have taken an idea , pioneered by Margaret Snowden and the Incentivised Transfer Working Group, to establish a code of conduct from within.

I won’t spoil the boys thunder- I have only seen drafts – but I tip my hat to them. It looks more than likely that through this initiative, those wishing to shape their retirement finances through financial planning (as opposed to the payment of a defined benefit) will be able to do so.


Why is this such a big idea?

I sense, at last, that there is some grown up dialogue happening between advisers and regulators and that advisers are – independently of their former paymasters – negotiating the terms under which they advise.

This is an important step in their gestation from salespeople to professionals.

I’m not saying that some advisers have not had individual influence, you only have to look at Alan Higham and Michelle Cracknell, both of whom have been practicing IFAs in recent times to see that advisers are influencers.

But what threesixty are doing is responding to calls from the actuarial community and from the trustees of occupational pension schemes, to show leadership. And they are doing so.


big thinking

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The markets are back but the damage is done.


There are those who thrive on the ups and downs of the stock market; high frequency traders take fractional advantage of moves up and down and like wind farms, make most when it’s stormy. You can buy and sell this volatility, using derivatives based on the Vix index (of volatility in the S&P 500 over the next 30 days).

For those who are saving, there is the comfort that when the market is down you buy cheap and when the market is up, what you bought cheap is “in the money”. Even when you buy “dear” , you don’t have to sell “cheap” because you are saving.

Savers needn’t be afraid of volatility, but spenders should.


Volatility is why most income drawdown plans don’t work as planned.

Unless, you are Paul Lewis, and invest your retirement pot in cash (forsaking any chance of investment returns), your money is in the market and the market is historically volatile.

This is a chart of 30 day volatility on the American stock market 1985 to 2012.


You may not read the small print, but you get the big picture.The big spikes are where the market is all over the place and over the course of 27 years (around the lifetime of an average drawdown), your fund is going to get punctured by one of those spikes.

It’s not as broad as it is long.

The problem is asymmetrical, it does not have as many winners as losers. I presented this slide some time ago to explain why (thanks Alan Higham for the graph).


The spike in the volatility on 9th August 2011 wasn’t caused by anything rational, it was down to some problems with computers that screwed up valuations.

But the market had a field day. Those who could see what were going on and were able to trade were able to take advantage of those who had to trade but didn’t.

In short, hundreds of thousands of small investors (quite often people with money in drawdown cashing out to get their monthly payment) found themselves selling at a price 9% lower than at the start and end of the day.

Alan Higham’s internal statistics (when he ran Annuity Direct) was that over 70% of the money that was disinvested to buy a once in a lifetime annuity , was disinvested from the markets.

What this means is that a high quantity of those people buying annuities around the 9th August – sold shares on 9th August – many losing as much as 9% of their retirement savings.

And 9th August 2011 will go down as a day when nothing much happened, the markets started and ended the day at around the same levels.


Paul Lewis – right and wrong

Why Paul Lewis is both right and wrong is that he understands he is powerless to protect himself. As a single investor he has (as the slide above shows) no power to determine when he is disinvested and it’s not just sod’s law- it’s market forces, that dictates that he will get the worst price in the day for his disinvestment.

This is not paranoia, it is the law of the jungle. Individual investors are easy meat for high frequency traders. Infact without individuals wandering around in the jungle, there would be no-one for the tigers to eat.


But Paul is wrong to think his cautious approach is right for everyone. Paul is (I think) 67, my actuarial tables tell me he’s got another 20 years in him (and they are probably underestimating Paul!). If Paul stays in cash for 20 years, he will either get a pitiful amount of income or he will drawdown too fast and find himself cashless in his eighties. Paul says cash is no place to be for someone in his 60’s, I say (in general) he is wrong.

Back to the Great Fall of China

On Monday, the Chinese stockmarkets tanked, today they are on the rebound. The FTSE tanked on Monday and but on Thursday it had recovered all its losses and a little more. Like the 9th August 2011, the week of August 24rd 2015 may be remembered as one where nothing much happened.

But  people who were selling their pension pots to pay off the mortgage – and did so at the start of the week – the amounts in their accounts could have been 5% more if they’d waited till the back of the week.

Who is to blame?

No doubt there is some ambulance chasing dingbat, opening up the back doors and wheeling out the stretcher as I type. Somebody is to blame for the Monday disinvestor being in shares, somebody to blame for him selling at the bottom of the market on Chinese Black Monday.

I can understand the disinvestor being peeved, he had no control. No one was looking after his interests, he was wandering around in the jungle on his own.


The problem with being in the jungle at night..

Some time ago we gave up on the idea of mutuality. The concept that held together our insurance companies, building societies, even banks – was that you were stronger together.

Part of the problem has been that idiots have been put in charge of the co-operatives, but the bigger issue is that we have been led to believe that given a good torch (and a financial advisor) you can get through the deepest jungle on the darkest night.

Forget it- I’ve been an advisor – advisors are no more likely to stave off a tiger than you are. Which is why sensible advisors have always suggested people club together to protect themselves from night-time jungle perils.

Until now that is.

Now it’s every man for himself. People with little or no understanding of the markets are drawing down from individual funds which offer little or no protection and many will be ruined.

Even people who drew down a slice of income early this week (from an equity based fund) will have upset the plans for the rest of the year, they’ll have sold too many units, their fund will be ravaged and the remaining units will struggle to get the plan back on par.

The ravaging for these people will be felt for years to come as their funds remain in deficit, only two things can happen – they must take a pension pay cut or risk running our of money.

Are collectives better?

You bet they are. collective drawdown arrangements (better known as CDC) have three key advantages

  1. They manage the risk of selling at the wrong time over thousands of people, some drawdown luckily , some unluckily but the lucky subsidise the unlucky and everyone gets something like what they expected – no nasty surprises.
  2. Collectively you can afford someone to manage the dealing on the fund so you are not always selling at the worst point of the day/minute/second. Collectively you have some clout in the jungle.
  3. Together, you can provide each other with protection against calamaties – living too long being the most calamitous happening for someone on their own. Collectively , “longevity” can be managed.

Where are the collective solutions?

The last great attempt to sort out retirement collectively – the defined benefit scheme – was scuppered by guarantees. People got too greedy and wanted all the risk transferred to the plan sponsors- the employers. Employers recklessly agreed. Government’s encouraged the greed and the  recklessness.

The door slammed shut on DB plans when accountants introduced mark to market valuations and things could get a lot worse. If DB plans had to reserve for their guarantees as insurance companies do, then the deficits would be out of sight.

The collective solutions are in hiding – or perhaps in waiting. There are brave people- people like Kevin Wesbroom, Robin Ellison, Con Keating, David Pitt-Watson, Barry Parr and a few others who keep the flame alight for collective solutions.

There are many – many on social media – who want to extinguish the flame. In weeks like the one we’ve just been through, I realise that income drawdown is not the right plan for most ordinary people. They would be better off in a collective arrangement.





I’m going to make sure that the light does not go out and that the collective solutions to this problem continue to get publicity.

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Pot follows member – over a cliff?

Horse over cliff

There’s a great saying in racing “I’d follow that horse over a cliff”. It’s a morbid comment on most gambler’s instinct to chase losses for sentimental rather than economic reasons.

When conviction sets in, then rationality is the loser and an idea can detach itself from reality, we really can follow ideas too far.

There are a number of Webbian ideas floating around at the DWP and pot follows member is one of them. Steve Webb was long on ideas and short on time to execute them. His term of office ended before those ideas reached the cliff-edge of execution. I would put CDC in the same category.

Why I’m writing about this today

Yesterday I arrived at Centaur Towers to do  a podcast with Sam Brodbeck. I had no idea what about nor whether I was podding solo or casting with a colleague. Sam announced as he switched on the mike that we would be talking about Pot Follows Member and that the gentleman I was sitting beside was Ben Cocks of Altus, who is in the thick of it (PFM speaking that is).

If you hear the podcast, watch out for an agile Plowman winging it , it was uncomfortable!

This blog is the result of a sleepless night trying to work out what I would have said if that Broadbeck hadn’t played that trick on me!

What Ben, Altus and the PFM crew get excited about

Ben’s views are documented via a recent blog published on Altus’ website and on linked in. The gist of his argument is that he hopes the DWP will press on with PFM

it will help avoid a proliferation of small and easily forgotten pension policies but more importantly it will show both customers and the industry that pensions can be quickly and easily transferred between providers. Without this free flow of assets between providers it’s hard to see how pension freedoms can be effective or more generally how competition can work at all.

This statement suffers from the myopia of the enthusiast (punter follows horse). The idea’s of pots free flowing between providers in a game of musical chairs. When the music stops, so to the pots, leaving one big fat pot for the retiree to enjoy in later years.

This works for ISAs because of the simplicity of ISA structures. ISAs have no nasty little secrets, like capital units, guaranteed annuity rates or guaranteed minimum pensions. ISAs are all taxed in the same way and they all invest in transparent investment vehicles without Market Level Adjusters.

Most importantly, the ISA pot is transferrable in specie. “In Specie” means that not just the value of the pot , but the actual investments, can be transferred as they are, without them having to be bought and re-sold. This process is called re-registration. It makes pot follows member as easy as sticking a new label on a tin of peaches.

So why can’t we have re-registration in pensions?

It’s a good question with a bad answer. The bad answer is that when your contribution is received by the pension provider it buys units in a fund that is typically created by that pension provider in a policy that is owned either by trustees (occupational schemes) or by the contributor (personal pensions). The policy may be owned by the trust or beneficiary but the assets within the fund are owned by insurance company issuing the policy. The insurance company typically outsources the management of those assets to another party who in turn sub-contracts many of the duties of fund management to other parties. The result is a buggers muddle of ownership.

Ownership issues in pensions are so complicated that the only way most pension pots can follow the member is by being “cashed out” and reinvested when they get to the next pension provider. While the money is in transit – it is “out of the market”, if the market falls while you are out of the market- you win, if it rises – you lose. It’s a zero sum game overall, but (as usual) the policyholder takes the risk and losers lose.

Not only is there the zero sum game of out of market risk (with winners and losers) , there’s also the frictional cost of buying and selling units. Insurance companies are fond of telling the market that they can manage the buying and selling of units across vast books of business at minimal cost.  It is true that the process known as “crossing” means that insurance companies can minimise the number of units actually sold and bought, but they cannot eliminate the costs, especially in thinly used funds for which a seller may not find a buyer.

The ideas of a “free switch” of funds, or indeed a “penalty free transfer” are myths created by insurance company marketing departments. The process of moving money from pot to pot is fraught with potential costs , many of which are crystallised. You will not see the costs show up on your transfer statement because of the subterfuge of another insurance company invention “the single swinging price” of a unit.

The single swinging price

This wonderful invention allows insurance companies to portray the buying and selling of units as being at no cost. But this is not the case, if you do the maths you will often find that the value of the units you sold (at the previous day’s price) does not match the value of the units you buy (at today’s price). Something’s happened.

What has happened is the imposition of what is wonderfully called a “dilution levy”. The dilution is in the price of the units you have sold, which have swung from one price to another. So you have lost money. The justification for the single swinging price working against you is that the insurance company has to make up for losses created in trading.

Theoretically the single swinging price could work for you as well as against you. But there is little chance of that. The single swinging price is not producing a zero sum game, there are a lot more losers than winners and that is why so many people on the wholesale money markets in the City- drive Ferraris.

The risks of Auto- Pot Follows Member.

Pension are complicated – every fool knoweth that. But why pensions are complicated, very few know. That is because the complication is papered over by half truths like single-swinging price, free switch and penalty free transfer. There are many other phrases used to explain away complexity and most of them are invented to disguise the cost of the complexity – to policyholders (and ultimately pensioners).

We cannot have pot follows member till we have assurance that the costs of transferring pots from member to member are fully disclosed and are kept to an acceptable minimum.

The arguments put forward by Ben Cocks and Altus are right at a high level. If we were talking ISAs , where all these issues disappear because of the simplicity of the ISA and because we simply re-register , then I would have no problem.

But to have an automatic , or even a default mechanism to transfer pots from place to place, we need to be certain that there will be fairness in the process.

The current proposals draw an artificial limit on the auto-transfer process, which will only apply to pots under £10,000. This artificial limit has no sense at all. £10,000 to someone who has £1,000,000 in his big fat pot is a huge amount. But £10,000 to someone with a big fat pot of £20,000 is a third of their pension savings.

Unless  the insurance companies are prepared to guarantee “loss-free-transfers” to all with pots of less than £10k, I cannot support a blanket switch. I have seen no evidence they are thinking of doing so.

Follow the member where?

There is a final point to this. The pot may follow the member to a better place, generally pension plans have been getting better for the consumers (especially with the abolition of commission). But that’s for new savings.

Existing savings, where the bulk of the costs may have been paid up front, may well be better left where they are (especially if there are guarantees in the air).

And some of the new pensions we have researched (and are accepting contributions under auto-enrolment) aren’t very good at all. Indeed we’ve had to report one or two to Action Fraud.

So to suppose that money flows around the system to the betterment of DC outcomes is naive. Generally things are getting better, but try telling that to people for whom things get worse.

Where I stand

In 1999, I wrote a paper for the Government’s stakeholder consultation (via Eagle Star) which argued for a system similar to that in Australia where members determine where money goes , employers pay money into a central pot and it gets dished out to the member’s pot using technology. You can see how this works by going to SuperChoice’s website. Australia adopted this system, we didn’t. Tough on us.

We are where we are, there is so much spaghetti out the back of the hi-fi, that I’m tempted to ditch it and start again with an MP3!

But we can’t do that with pensions, we have to live with the legacy and make the best of a bad job. We cannot insist on pot follows member to clean up the legacy.

The best we can hope for is that “scraping technology” as used by the likes of MoneyHub can pick up live fund values and give people the semblance of one big fat pot -despite the pots sitting with differing providers.

The big issue is where those pots go – and as I have no confidence that those pots would go to a good provider who would help the ordinary person spend their savings as income effeciently, I say – for the moment- keep the money where it is.

Do not press any buttons, do not incur any (extra) charges, do not follow the pot over the cliff.

horse apple


If we get a default decumulator that is as good at helping us spend our savings as build them.

If we get a way to satisfy people that they will be protected in later life through such a decumulator from living too long (or even from nursing fees).

If we have a radical simplification of taxation to make pensions as structurally simple as ISAS

If we have a no-loss guarantee from participants in the transfer that makes the phrase “penalty free transfer” real.

Then I am for pot follows member. Right now I am giving it an amber light and it won’t get a green light till I can see that the pension landscape is clean enough to see money’s flowing freely through it in the ideal way promoted by Ben, Altus and those who will follow pot follows member over a cliff.

horse over cliff 2

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How do you compare pension default funds?


apples and pears


An old colleague contacted me yesterday with a simple (but great) question. “how do you compare pension default funds”.

I can speak on this for First Actuarial, who provide the investment ratings on default funds for the Pension PlayPen and for Pension PlayPen who apply these ratings to the circumstances of each employer.

You could split the question into “what’s best” and more particularly “what’s best for you”.

This is my answer , but I’m looking forward to hearing what everyone else had to say when the FCA publish the results of their call for evidence later in the year.



It’s a great question. Of course this is what tries to do using a value for money benchmark which is (currently) all out own.

It’s not as simple as it was, in the past a workplace pension’s default fund targeted an event -retirement (a pretty nebulous notion but at least one that everyone thought they understood). Now defaults can target a certain age (or year), or a product (annuity, drawdown,cash) or even- (were we to see CDC) – death.

But the fundamental measurement always comes back to value for money and can only be based on anticipated outcomes based on likely probabilities of success.

To achieve anything like a fair basis of measurement, there has to be consistency in the way “value” as well as “money” are measured.

Even the “money” or “cost” measure is tricky. What might look like an investment AMC may be anything but. With the wholesale market price for a global equity tracker around 6-8bps, even the super-low AMCs of 25-30bps are clearly mainly a handling rather than an investment charge.

If you are paying 75bps (0.75%) for a default fund, you are probably only having 10% of your payment passed on to a third party. The rest is kept by the product manager.

But the 6-8bps being paid by the product operator may be subsidised by all kinds of member borne charges that the member doesn’t see. These might include the charging of secondary services to the net asset value of the fund (NAV) which creates a drag on the performance and but’s not part of the AMC (hidden charges).

It might also include the re-use of the fund for secondary purposes (stock lending) where the member’s stocks are re-used for the profit of the fund manager and to the detriment of the fund (stocks lent are not always returned).

So a value for money measure has to be independently measured from the AMC. The value measure is even more complicated as defaults split to do different things.

We may sometime see a reclassification of defaults around their targets (in the old days we had “balanced”, “equity”, “property” etc. In the future we may have “target date”. “whole of life” “annuity at retirement” “cash at retirement” etc. This at least would enable analysts to compare apples with apples.

Within each category we could then establish what members would be likely to get for their money – what the “value” was. To do this, there will need to be commonly agreed benchmarks for what a fund might reasonably be expected to achieve and then a risk adjusted return analysis that looked at how the fund was progressing based on both the actual performance and the risk taken to achieve that performance.

The ultimate performance measurement has to be a composite of the two strands of analysis (value and money). But the more fundamental question is what do I want my fund to do.

To use an analogy


If I can buy a functioning Ferrari for £10k and a functioning mini for £9k I might still struggle -tempted by an inappropriate choice (I don’t need a Ferrari- even though it is better fun).

If I bought the Ferrari because it appeared better value for money and then used it for the school run, it might be fun for a bit, but it would soon become tiresome (they’re a nightmare to park). The mini might have been a better fundamental option after all!

But if I’m looking at a mini for £9k and a Trabant for £9k, the choice is easy, in the same category of car- the mini wins hands down.


I won’t stretch the analogy because of course it also comes down to condition etc (when buying cars) and I know you can’t buy a first hand Trabant but I think this gives you the right picture.

The point I’m making is that we don’t (yet) have a proper system of comparing apples and pears , let alone different types of apples and pears and certainly no way of comparing value for money when we’re buying different apples and different pears.

If you wanted a simple answer as to why this is, I’d say it comes down to a lack of holistic thinking. Investment consultants (apart from the magnificent Adrian Kite of First Actuarial), still think about DC investment funds in terms of the past and not of the future. They don’t have a clear set of categories, they don’t properly measure costs (money) and they haven’t developed an outcomes based (risk-adjusted measure) for performance (value).

The FCA called for evidence on all this in April and we are now nearly in September. Hopefully they are busy thinking about what value for money looks like in a DC world and will take us one step of the way towards answering your question for the country.

We need more people asking your question Dominic, and more people thinking about it in a clear headed way. When an employer comes to me and asks me “what’s best for my staff”, I am expected to give him a straight answer, a comparison of the default fund is critical to that answer.

I can tell the employer what is best based on investment ratings, durability, communications, payroll interface and admin, at retirement strategy and of course cost. I can of course tell whether the provider is prepared to offer his product in the first place.

But our system is based on First Actuarial analytics and on the weighting to all the measures listed above determined by First Actuarial and by the adjustments made by the customers of Pension PlayPen to those ratings.

It is only one view, one way of doing things. But at least I can explain it and (for me at least) it is convincing.

What we need is a nationwide, consultancy wide, Government approved, answer to your question. I will continue to press for that and glad that other people (like you) are asking the same question

Kind regards

The Pension Plowman

Dominic Jessup

Dominic Jessup


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What the great fall of China does to my pension.

great fall 2

The falls in the world stock markets since April appear huge, our own market has fallen 15% , market in Asia, much more. But the equity market that has fallen the most is China. The great fall of China is being billed as a “re-calibration” – in other words, market experts would have us believe that the original valuations of Chinese company’s worth was wrong and the fall in values really is a matter of better accounting.

Great fall of China

A more pessimistic view is that global economists have been lulled into a false sense of security, relying on growth from China and other emerging economies to drive up valuations of European and American companies.

Whichever view you take, and I suspect the truth is somewhere in the middle, this has been a crappy six months for people who’s pensions have been invested in shares.

Is your pension invested in shares ?

Great fall 7

Most people have no idea where their pension is invested, but they will – especially if they are in a Defined Contribution scheme, most likely be invested in shares. This is because most people in pension schemes (rather than drawing pensions) are some way from retirement and the default settings for their investment strategies have them 100% invested in shares until they are at least fifty.

So if you are under fifty you are probably mostly invested in shares. And as you get older you are less invested in shares and more invested in bonds. Bonds aren’t supposed to go up and down like shares, the value of bonds depends on the outlook for interest rates and the financial strength of the organisation issuing the bond (which is an i.o.u.).

If you are Paul Lewis , then your pension isn’t invested in shares or even bonds but in what is invested in cash.

My comment is fair. Paul is (hopefully) in no need of taking all his pension as cash and is likely to live at least 20 years (he was born in 1948 making him 67 – I think).

Paul can crow for the moment that he’s unaffected by the “great fall”, but with cash yielding little more than 0%, Paul is using his pension as an expensive cashpoint.

George collects your pension

George collects your pension

Most people who have pension pots and are over 55  are not invested in cash, but in real assets – shares and property , mixed up with debt (bonds) and cash. This is the default strategy for most people in drawdown and in lifestyle strategies.

If you are not in drawdown, you have a guaranteed income and you have no worries (at least about market crashes) – your income is guaranteed. You could  be getting a pretty crappy income in the first place mind! (unless you bought your annuity when interest rates were high or were in a DB scheme a decent time).

Does it matter if you are invested in shares?

Great fall 5

It matters more as you get older. If you have 20 years to go till the point your pension starts paying you, then you will go through many “great falls” and you should shrug, keep calm and carry on.

If you are approaching retirement and thinking of spending your pension , especially if you are thinking of taking all or a big chunk at once, then being in equities over the past six months will be bad news. You have two choices, bite the bullet and cash out (tough) or hang on and wait. If you are cashing out of equites right now- it’s going to be painful -especially if you are looking at a statement dated from earlier this year!

Similarly , if you are currently drawing down from your retirement pot each month and you are in shares, then this dip could really hurt you. You could become a victim of what has been called “pounds cost ravaging”.

What this means is that the monthly amount you are drawing is meaning you are cashing in your shares at a very low price, depleting your retirement pot far too fast. The payments you are currently taking could deplete your pot to such a level that you will have to adjust your payments (downwards) in the future.

Great fall 6

This is why Paul Lewis says that someone in his sixties should not be invested in shares.

What does the great fall of China mean to those with a  pension?

To youngsters- it’s a blip, that will be forgotten like all the other blips (including 1987 and 2008) by the time they start spending their money.

great fall 3

To the middle aged it could be a pain, if there’s a plan to cash out all or most of the pension

To those in later life (who don’t have income guaranteed), this fall of China could be bad news. It could mean them having to take a haircut on the amount they pay themselves for the rest of their life.

great fall 4

Why is Paul Lewis wrong?

Paul Lewis may be right for Paul Lewis, but he is not “everyman”. Most people cannot afford to have their pension pot in cash the last 20 years of their life. They need to take some risk to get some reward.

Over the long term, a diversified approach to investment which intelligently mixes up shares, bonds, property and cash is the most sensible way for most people to be invested to have a secure income.

Insurance companies invest this way with their mega-funds and so do the big public and private defined benefit funds. Go abroad and look at what the big sovereign wealth funds do – it’s the same. They invest across a range to get a smoothed investment return.

What’s more, because they are investing collectively, the cost of investing for the big boys is much lower than for you and me.

Finally, these big funds are investing on behalf of everyone and can manage payments much more easily – it makes sense that if you are managing for millions of Paul Lewis’ (so to speak), you can run a fund for the Paul Lewis’ that die young and those that live a long time (without the fund going bust).

If you are a DC investor in Holland or much of Scandinavia, you get the protection of collective investment. It doesn’t seem worth much when markets are going up, but when times are tough (as they are now) collective investment protects people from pounds cost ravaging and allows them to continue to draw a stable income.

Paul Lewis Paul Lewis Paul Lewis 4 Paul Lewis 3Paul Lewis 3Paul Lewis 4Paul LewisPaul Lewis

Paul Lewis is wrong because he is only Paul Lewis, he should be in a collective fund with lots of people like him , he should be invested in a diversified way (not just in cash) and he should have protection against being a super long-living Paul Lewis (which he very well may be).

The great fall of China

So what does this massive fall in the value of world shares mean for pensions as a whole? It means that for the first time since the Pension Freedoms came in (in April) that people’s pension pots are likely to have fallen in real terms. Sooner or later, all the people who have chosen not to buy an annuity but to drawdown from equity portfolios are going to get a nasty letter from someone saying they are going to have to take a drop in drawdown or risk their money running out.


These people are going to moan, they will moan like crazy. They will moan at fund managers, insurers, advisers and they’ll moan at the Government.

And people will start asking questions about the pension freedoms. First of all, they will ask why they stayed in equities, then they will ask why they didn’t get protection and eventually they will ask why nothing is being done to provide a collective way to spend their pension pot. Put another way, why there isn’t a default spending option.

The answer’s coming (slowly)

Unless the Government cans CDC, it can legitimately claim that it is building the conditions for a default spending option for people who want and need to be invested in real assets and cannot afford the “risk free” option of annuities or the Paul Lewis cash option.


CDC won’t be around for a few years yet, this is because there is precious little resource being directed towards building the detailed regulations that allow it to be integrated into our already complicated pension system.

It may be that the changes in taxation of pensions make the progress to CDC quicker (if pensions become simpler) but I think this is more dream than reality.

A solution to the problems that people will face from the great fall of China is on its way but won’t be here till the end of the decade (IMO).

The pain that many people over 55 will suffer as a result of the slump in stock-market valuations will come soon and with it a call for reform. In a perverse way, the pain of a stock-market crash is probably what we need, to provide a lasting solution to the problems we face spending our pensions.

time to spend

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The tricky job of enrolling the self-employed into pensions


The estimate from the Citizen’s Advice Bureau that some 460,000 extra workers are currently missing out on auto-enrolment because employers deem them independently self-employed seems reasonable.

When employers conduct a workforce assessment, they generally do so with a cut of data from payroll. They do not ask their finance person for a list of people who are regularly invoicing the organisation for the possibility some are so dependent on the payments of these invoices that they should be reckoned “workers” and subject to the assessment.

This is particularly important for the many employers who claim to employ no-one but still submit trading accounts. These firms are typically paying regular bills submitted by self-employed individuals, if only to their book-keepers!


This state of affairs is problematic and needs clarification. Ros Altmann is currently running an informal consultation to find areas where simplification is needed to make auto-enrolment easier.

Clearly this is an area where simplification would be most helpful.

But for the self-employed person the situation is anything but simple. Not pushing for a pension contribution is to deny yourself your rights, but most contractors who are dependent on one employer are frightened to death of losing the fragile contract. Could it be proved , following the pension conversation, that the contract was lost because of it? The self-employed have few rights and the right to a pension contribution is very far from the top of the list.

The Government struggles to find a definition of a worker that properly covers the contractor.


So the question for Ros Altmann is whether to press their rights – and cause a lot of trouble, or to drop their rights by maintaining the current state of affairs.

I am unsure about what is the best way forward. I am not used to sit on the fence but while I don’t see the current situation as satisfactory, I think there could be a lot of harm done by forcing employers to make an invidious choice.

This is not an argument for compulsion (which is where these conversations usually lead).  Making it compulsory on the employer to include all self-employed contractors on the auto-enrolment assessment may be helpful to the Treasury – who have long been wary of the bogus self-employment contract. But in the process of forcing the company’s hand, it risks driving the self-employed into unemployed at a time when the unemployment statistics are crucial to the Government’s reason to be.


So it’s going to be very interesting to see how this conversation turns out.

What may be best is that we have another consultation (we haven’t had one for weeks). A consultation on what to do about self-employed pension contributions is long overdue.

My personal feeling is that we need to introduce a voluntary class of national insurance contributions from which the self-employed could opt-out, through an act of extraordinary complex tax- shenanigans which would need to be signed in triplicate by any advisor (ensuring that there was no incitement).

Contracting out of these higher rate self employed national contributions would then become as onerous as opting out of employer contributions.

With a Government match on contributions , it might even become a popular thing for the self-employed to stay in.

Posted in advice gap, auto-enrolment, Henry Tapper blog, Politics, Treasury, welfare | Tagged , , , , , , , , , , , , , , , | 4 Comments

What passing bells for those who work as cattle?

passing bells 2

It’s currently cool to talk about treating your workforce as a commodity. Evidence- Jeff Bezos can get on the Front Page of the New York Times for his experiments in office cruelty. “Amazon is successful right now- Bezos must be getting it right” – this from one hard-pressed “worker” in Pension PlayPen Ltd!

Bezos’ antics haven’t gone un-noticed – not least in the pages of the Guardian where Will Hutton has written brilliantly about the disposability of the workforce, citing the behaviour of Jeff Bezos to show just how far Amazon is from what is the cultural standard in UK’s traditional employers.

But the standards of the past are not always transposing into the present.

The Citizens Advice Bureau have calculated that there are 460,000 people in this country who are being classified by employers as self-employed but are their “workers’ according to the definition applied by the DWP for inclusion in auto-enrolment.

In the old days, we’d have heard about this from the unions, but the 460k lost souls aren’t union members. Of course pensions aren’t the only things they are missing out on but it’s the kind of issue I’d want to have our new(ish) pension minister getting her teeth into

For the record Baroness, it’s not cool as far as I’m concerned.

I wrote in 2012 about the practice of some staffing agencies to move workers to offshore contracts (typically housed in Sark) to ensure they were not eligible for pension contributions till 2017. One organisation offered supply teachers a fractional advantage in take home in exchange for giving up benefits. The staffing agency was supposed to be based in Sark but was run out of Victoria. When I visited their offices they had as piped music- the sound of seagulls. Presumably this helped supply teachers believe they were employed offshore!

This abuse is still going on. It’s not cool to dupe people out of their benefits, nor is it cool for productivity. The decline in the benefits payable to UK workers has followed closely the decline in their productivity, or is it the other way around?

The “don’t give a damn about our staff ” culture , espoused by Bezos and others is replaced by a “give everything for your company” culture. Reading about Amazon, I am reminded of my early years working in life insurance when I (and many of my colleagues) became obsessed with mission statements and quite forgot the broader values that governed social behaviour.

We not only became extremely annoying to our customers, we created an anger against aggressive insurance salesmen that persists to this day. Short term win- long term disaster!

What is cool, is to see employers investing in their workforce for the long-term through training and through benefits. It would certainly be “cool” if some of the companies that manage the pension funds of the likes of BA and Cadburys and Centrica, started to look at the shareholder value they create in terms of the way they treat their staff.

I am an advocate of long-term investment, the fund managers I admire- like Aberdeen and Fundsmith, are managers who value companies who take a long-term view on staff welfare and who invest in their human resource as a priority.

But these investors are few and far between, at the other extreme are the venture capitalists hawking private equity. Their time horizons are seldom more than five years and- as they feel they will not reap the dividend of investment in the workforce, their priorities are immediate profit maximisation.

For the companies being founded in the past fifteen years, the easiest path to growth is through the short-term financing of private equity.

What is needed  is a realignment of interests. The interests of people in the company they work for needs to be a long-term interest, just as the interest of companies must be in building long-term relationships with staff.

For those of us who work in pensions (the ultimate long-term product) , there’s a need to return to a vision of what we do that links the benefit of the staff pension to the long-term good of both staff and companies.

This means getting beyond the “compliance culture” of auto-enrolment and convincing employers to treat their staff fairly.

This means including the 460,000 “self-employed” workers currently excluded from workplace pensions, closing down the loopholes that allow British teachers to be employed in Sark (to avoid the payment of VAT and pensions) and a general move back to the payment of proper contributions into auto-enrolment plans.

I don’t meet many bosses who want to be seen as uncaring employers. Even Bezos believes he is caring for his staff (no matter how frightful working at Amazon appears). Lucy Kellaway is quoted in today’s FT as having Bezos as a corporate pin-up.

She argues

“At Amazon, the customer wins- and the employee does not. The company may not have chosen the most morally acceptable trade-off. But it has laid bare this fact of economic life, when some win, others lose.”

I’m a boss , a shareholder and an employee. I don’t see things aren’t as binary as that. Nor do Facebook or Google it would seem. Compare the attitudes of these organisation to what we know of Amazon by reading Gill Tett’s recent FT article.

We don’t need to be nasty to our staff to get the most from them. As Will Hutton concludes

Ultimately, long-term value creation can’t be done by treating your workforces as cattle. It’s the great debate about today’s capitalism. It would be a triumph if it was taken more seriously in Britain.

Ultimately , this is a long-term v short-term debate. Good guys win in the long-term.

Passing bells

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Helpless? – and scammers in town!


One of the worst things about doing my job is seeing people being fleeced without being able to do anything about it.

I know that Katie Morley feels the same way – I can feel it when she’s writing about fraud. It must be particularly galling for Katie to discover that the articles that she is writing to prevent people being ripped off by unscrupulous villains in the Middle East are being used as a smokescreen of concern by.. unscrupulous villains in the Middle East.

I can’t tell you who these unscrupulous villains are as I might be seen to be “tipping them off”.but they’re the usual crew in new clothes.

Robbers will be robbers and cops will be cops and it’s all a bit keystone in Dubai and the Emirates.


Which is why the Pensions Regulator has decided to spend time engaging, educating and empowering people to stick two fingers up at the villains, rather than get on his camel.

I am not at all sure why I should be helpless. God helps them who help themselves, especially when they’re helping themselves to a big fat slice of someone else’s pension.

Maybe the shark has the right to eat me…

shark in his house

Maybe I’d be better off on the rob – in the dunes or wherever professional pension robbers hide out. Is this pension robbery state sponsored pension terrorism.Are Bin Laden’s kith and kin now dressing up in ISIS headgear to fill the caliphate’s treasure store with the infidel’s retirement savings?

I’d have some kind of God on my side, and not be skulking ignominiously in silence, afraid to tell what I know for fear I made things worse.

And there’s no dove from above that I can call down to peck these poxy pension pickpockets.

So i really am helpless and not helping myself much by going on about it.

There’s a shark in the house and there’s a scorpion in those dunes.

The scorpion’s scurrying about right now and he’s after your savings. Keep your eyes peeled, don’t get stung-

scamproof scorpion

If it offers you a “free review “,

that scorpion is after you.


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Mobilising millions – training employers on AE.


Who is going to mobilise the millions of bosses still to stage auto-enrolment?

There are not 1.3m but 1.8m employers in the UK who will need to stage auto-enrolment.Of these , all but around 65,000, more than 1,790,000 employers have yet to get going. And only a tiny proportion of those employers know anything about providing a workplace pension for their staff.

To date, the issue has been about advice, tomorrow it will be about training. Few properly understand who will be doing the training as the vast majority of payroll agents are not regulated. Even the software houses who license payroll software through these agents (known as payroll bureaux) know little about the majority of them.

They exist because of the accountants who manage the back offices of most small businesses in the UK and who are critical to the success of auto-enrolment (part II).


Training is not about financial advice

If there is one phrase guaranteed to annoy practicing accountants working with SMEs  – it is “financial advice”. Accountants do not give financial advice to those who have no means to pay for it or capacity to use it. As Steve Webb used to say, people staging auto-enrolment don’t need advice, they need training.

The biggest issue facing the Pension Regulator over auto-enrolment is whether it can mobilise the silent army of payroll agents working in payroll bureaux for the legion of accountancy practices and book keepers, to manage through the auto-enrolment process till it becomes Business as Usual.

The Pension Regulator has worked out that it is this training, not enforcement, that will make auto-enrolment a success. The job of mobilising the millions of employers will fall to maybe 75,000 payroll bureaux and a hand full of organisations offering free internet payroll services (Payroo being the most notable). Beyond these organisations are those employers who operate the most basic payroll service using HMRC guidelines (and a little anticipated help from tPR).


Web-based training is now in place

The training resources at the disposal of these bureaux and to those providing software are principally web-based. The Pension Regulator has now reorganised its website into a ten step auto-enrolment process. The employer journey is better organised and it’s now possible for payroll agents to take clients from one end to the other with relatively little difficulty. If you haven’t visited the website recently, click here.

There is still one dodgy link in the chain, the infamous step 7 . We know the Pension Regulator is working hard to help employers choose a pension scheme but this remains the weakest link. If you can select and onboard your workplace pension then steps 8-10 are a relative doddle.

But it’s one thing to have a website , another to engage, educate and empower people to use it.


Training means training (not selling)

Training to help employers stage auto-enrolment (including choosing a workplace pension) should be mandatory. It should not be about selling software though promoting the obvious software solution may be a part of the training.

When I got cross with Sage a couple of weeks ago it was because of exploitation of free training resource  (from tPR) to profit on the need for training. Sage ,Iris and Moneysoft (in that order) have the biggest roles to play in organising the training of bureaux staff (and the engagement of the accountants who own the bureaux). It is critical that they get training programs in place by early 2016, to train staff to help the 1.8m through.


Face to face is best- webinars will do

If you are a payroll agent and you have the opportunity to go to a face to face training session of even webinar, where the emphasis is on training not selling then go. Anything which has the Pension Regulator at it , is worth going to, though bear in mind, they are appearing free of charge to the session organisers.

Webinars are not so good , but a lot better than nothing. Again, pick webinars where the emphasis is on training.


Give Feedback

If the seminar or webinar offers training, give them good feedback, if it’s a sales pitch, then tell them it wasn’t helpful.

In our opinion, this training should be free and offered by software providers as part of the support package. If you’ve not yet  been offered training on auto-enrolment and you are a customer of one of the payroll software companies, ask them why not. If they are threatening to charge you for it, ask what you get for your money. If you aren’t satisfied with the answer , ask them to contact me (

We have a training budget and we’re not afraid to spend it.


Posted in auto-enrolment, pension playpen, pensions | Tagged , , , , , , , , , , , , , , , | Leave a comment

He’s here, he’s there,he’s every f**k*n where -Carsten Staehr


If you were in Carriage B on the 15.35 Kings Cross to Newcastle yesterday afternoon, our apologies. It was a quiet coach, it wasn’t quiet. Carsten Staehr was in the carriage.

Two weeks ago, at the age of 52, Carsten Staehr became a father for the first time. The man is a viking marauder, a blue-eyed Dane who looks trouble. He’s tall with a mane of fine silver hair, the man knows no moderation in his love of life – were life a party, he’d be its life and soul.

When Carsten won best boss at the Payroll World awards, this is how his company promoted his profile

carsten colourful

I have tried to tie this man down for a year. He runs a decent payroll-Cintra, it made the best part of a million quid last year off a turnover of £5m, Carsten’s making the company grow and he doesn’t have time for idle chat. I made up my mind to ride the East Coast Box-Car to Newcastle – listen to his story for three and a quarter hours, so I bought a day return to Newcastle, a bottle of Chablis and pulled the cork.

Here are the few notes I took

“write this down Henry- we like to spread the jam”.

Carsten on HR

“If you don’t give a f**k about your customers, you get a P45”.

The idea behind Cintra is “happy clients”. Carsten is happiness in a bottle , though I haven’t seen his wrath, it seems fired by the injustice of sadness. “Make my customers sad, feel my wrath”.

Carsten on sales

“I keep enough money in my company so I don’t have to sell anything” many companies do you know, who don’t have to sell anything?”.

Carsten is always selling, he doesn’t know how not to. But his point is about capacity, about getting rich slow and about keeping customers happy over time.Sometimes you cannot take on new business, if it threatens to swamp customer service.

Carsten on Denmark,

“Denmark is good because there’s no fu**in corruption. Everyone in Britain is on the make, We (the Danes) enjoy paying 73% tax rates because nobody ever goes to hospital old and hungry.”

The man’s an old fashioned socialist, a wealth generator who believes everyone can be as happy and rich as he is, because everybody he meets leaves him happier and wealthier. I am sure there are people who don’t get Carsten , but they probably don’t like sunshine either.

If this sounds like the Pension Plowman, losing his bearings and succumbing to a potty-mouthed Scandinavian charmer- so be it. I haul up the white flag and surrender to three hours on the train and a further three in some Persian Restaraunt in what Carsten called the intelligent end of Newcastle. We were to drink Austrian wine in the Cherry Tree but the Cherry Tree was shut. We drank Chateau Musar and remembered the Hochar’s who produced great wine in a war-zone.

I smiled my went back to London on the last train, and Carsten went off to look after his new baby!  This morning I am bubbling with the spirit of the man and with the pleasurable prospect of doing business his way.

It won’t be a struggle!

And to Alexandra , who arranged all this , I leave the last word. Carsten told me that when she started working with him, she wrote the right formal letter. Here is the email she sent me last week after I’d tried phoning Carsten to confirm …

Hi Henry 

Lovely talking with you yesterday – sorry for confusing you by talking in a coherent way with no swearing

carsten -chicken

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Financial advisors need better retirement products


Better products that deliver what they say

I had the pleasure of Chris Radford’s company over the weekend. Chris is a consultant to pension providers , a regular at our Pension lunches and someone who thinks about the way ordinary people buy things.

I’ve recommended him to get on the panel of experts who will conduct the “Financial Advice Market Review”.

Our conversations come back to the missing ingredient in the adviser’s soup – the product. Chris argues that we need fewer but better products that deliver what they say.

Certain delivery

This idea of “certain delivery” is critical. The sofa you order this month for Christmas is not the sofa that arrives two months later in February, it is a Christmas sofa. If it doesn’t turn up then it’s a rip-off.

We want products that deliver the right money , in the right way , at the right time. That’s all that products do – shift money over time. The recently conducted survey of 2000 individuals that showed a preference for paying tax now in return for certain tax treatment in the future, shows which way the Government should be heading,

But certainty is only half the story, the certainty of failure – or at least of disappointment against expectations, was what prompted the lifting of the rules around annuity purchase.

“From this moment on nobody will have to buy an annuity”

Advice is judged by outcomes

The difficulty, financial advisers find themselves in , is not about the cost of advice, but justifying the cost of advice in terms of outcomes.

Here are some numbers from the Daily Mail study into why people retiring don’t want to take financial advice

Daily MailThe startling thing is that  almost every comment (typically 1.5 comments per person) relates to value for money.

We know that value for money is an equation that people make between the cost of something – and what they get. Discount the small number of people intimidated by financial advisors and the public is saying they do not get a product that justifies the price.

The result is that only a few of those spoken to , either have or intend to get advice when they access their retirement savings.

Mail 2The most important part of the article is the ‘vox pop” of comments (125 of them when last I look). I would strongly advise those running the Financial Advice Market Review, to read every one.

Though many are pusillanimous, they add up to a powerful statement, the statement is that the outcomes of the advice do not justify the cost.

I was told I had to get financial advice before I could transfer to income drawdown. I know what I want to do with MY money so I told them to get lost. Still waiting and will take the matter to the Financial Ombudsman if necessary. (speakwithsharptongue)

and again

For financial advice see financial sales, without any real concern for what happens after (general Harry Flashman)

and again

The problem with Financial Advisors is they gamble with your money, charge you 10% for the privilege of doing so, sometimes say sorry if things go wrong but often tell you they did warn you of the risks involved!! (Bread Man)

and again

After decades of being scammed by insurance companies, pension companies and banks, one can be forgiven for being reticent to trust some 25 year old advising how you can ‘guarantee’ a fantastic retirement beyond your wildest dreams. (gasman)

(I have selected comments that have the most endorsements).

If the advice leads nowhere, then people feel they are better off on their own. The Daily Mail tells its readers to take advice but the vast bulk of the comments are of the kind I have selected.

What is most worrying for advisers, is that many of those commenting are thinking of advice in terms of what happened to their endowments and other “legacy” products.

Simply repeating the advisory process for today’s retirement products, repeats the (negative) experience of the customers). I suspect that the way that advice is delivered will become one focus of the review .

Better products – not more advice.

But even more important for the Review is to understand where the advice is leading to. We may re-invent the advisory process, but if it leads to products with the same systemic issues, all that has changed is the shop window.

As the first comment about Income Drawdown, points out, if the product requires advice and the outcome of the advice is seen to be a poorer product, people will get nasty (go to FOS).

To the public, the products that people buy with their retirement savings either offer rip-off rates (annuities) or rip-off charges (income drawdown). In the public’s mind, these rip-offs are associated with the intermediary salesmen.

The last word should go to the top-commentator (in terms of endorsements) – Frank Howorth

As a retired business man I think I could give many of them better advice than they could give me !!!!!!

This hostility is not reasoned or reasonable, it comes from the frustration of people who are told  to go to advisers but are frustrated by the outcomes of that advice.

The problem is in the product and we have to get a better retirement income product into circulation than those currently on show.

I will be arguing to the Financial Advice Market Review for better product. If you don’t know what I mean, press here.

piggy bank

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Disruption – is how social media regulates


In the context of Business continuity management, Disruption is an event which causes an “unplanned, negative deviation from the expected delivery … according to the organization’s objectives”.

In this blog, I argue that disruption is part of the governance process and is closely aligned to “Regulation”

The word “regulation” has rather lost touch with its roots. If we returned to what the word is composed of “the act of making regular” then it begs questions about why we need things “regular” at all. Why not total diversity, a free for all where nothing can be expected and choice is everything.

The act of regulation assumes that a standard way of doing things is best, and that deviation from that standard, a divergence from the rules, needs straightening out.


There is a strong theme in capitalism, that markets self-regulate. This is often referred to as “mean reversion” , the process by which everything returns to the standard way over time because the market demands it.

The demands of the market , to return to what it considers the “mean”, the standard or (to use a loaded word) the “right” way is typically considered in terms of customer buying patterns. If a product or service is mis-priced , it will ultimately return to the right price. But “ultimately” may be too long, some times Government disrupts the market’s process and accelerates a change.

An example – in financial services – is the Retail Distribution Review – which forced change on advisers and providers of financial services – abolishing commission – requiring higher qualifications and insisting on better ways to treat the customer fairly. The RDR was disruptive – still is.

But this kind of top-down disruption is informed by the political process. Political – radically – derives from Politikos and simply means “of or relating to citizens”. The market forces , on which capitalism depends, demand democracy, where the voice of citizens is heard though process.

Disruption happens when citizens demand change, understanding these demands is the job of politicians who create rules , like those arising from the RDR.



Sometimes, the market self-corrects without political influence. This is when the voice of citizens is listened to by those “out of line”. If South West Trains chooses to reduce its carriages in August and as a result people have to stand in out-dated rolling stock for hours, then pictures of unhappy customers start appearing on twitter.

This can of course work in other ways. When Lords reformed itself to allow paying customers to walk on its hallowed turf.

Or when the Pensions Regulator gets its act together

Or when a politician makes a difference, as Steve Webb did last parliament.

These comments , postings, blogs – call them what you will, go into the great electronic scrapbook called the inter web and get ordered by Google and served back to the people impacted through searches.

A friend of mine, who is on the Board of NEST told me that when she gets press clipping, half of them have comment from me. That I’m sure is an exaggeration but it is proof that if you bang on about something for long enough, you will probably get heard! You may not get fed (NB – I am owed a lunch) – nor liked. But your voice gets heard.

And your voice, like all the other other voices, creates pressure for change.

What I write is designed to get read, not just by people who like what I am saying, but by those who don’t. Those who’s way of doing things will be disrupted. If I am wrong, they will be vindicated, if I am right, they will be castigated.

Somebody phoned me up yesterday , to say that a blog I wrote about his company, “did not help my cause”. I am amazed that people still do this. I wasn’t criticising his (large) organisation, because it was rubbish, but because it was behaving in a rubbish way.  I may be wrong, I may be right- my voice is only one of many,

But “my cause” is not helped by me sitting idly by when an organisation profiteers from people’s fears about auto-enrolment. I am better off pointing out where things are going wrong and suggesting ways of doing things better. If I am wrong, then the market will tell me (which it often does).


Unplanned , negative deviation?

Organisations that threaten customers ( I am a customer) because they point out that the service is rubbish are missing the point of the self-regulatory process. In isolation, a blogger may not be right, but he or she can often be saying things that others are thinking and not saying.

So South West trains- which has an excellent Social Media strategy, came right back at me

We had a conversation, South West trains are not trying to asphyxiate customers on purpose, they just have crap rolling stock! I forgive South West trains where I won’t others, because they are always listening and to some degree trying to change.


We have an open media, many countries don’t. We can be thankful that we can all have our say with our comments and postings. Many choose not to talk on the web – no one says you should. Those who talk are rightly shot down if they talk rubbish.

But shooting people down because they are not “helping their cause” is not quite the same. Sometimes, the only way to help your cause, is to tell it like it is.

Publish and be damned, In the interests of disrupting, or correcting and regulating.



Posted in advice gap, auto-enrolment, Payroll, smelly | Tagged , , , , , , , , , , , , , , , , , , | Leave a comment

Re-engaging employers with their staff pensions


Once it was so simple. Good employers offered good pensions and lousy employers didn’t. The good employers congregated at NAPF conferences and congratulated themselves and an industry fed on the easy money growing within these plans.

But then came lower than expected interest rates, lower than expected  market returns, longer living and ever greater demands on companies to account for pension promises as corporate debt.

Pensions stopped being fun and started becoming a problem.

The decline from “reward” to “liability management” has continued to the point that the proudest boast of a CFO is that the “pension problem will be over soon”. It’s the length of the flightpath to buy-out that is the metric by which the success of a pension is measured.

There is simply no point bemoaning this. This is what it looks like in Corporate Britain and the only reason the public sector is different is because the tax-payer is not as savvy as the share-holder.

If the point of investing is return, the return on an investment in staff pensions has rendered it pointless. Pensions are now a corporate obligation (under auto-enrolment), effectively a lag on cashflow, a stealth-tax.

The marketing departments of pension consultancies, corporate IFAs and the new breed of auto-enrolment consultancies stress that auto-enrolment has nothing to do with pensions and employers and their representatives (the trade bodies) have picked up on this.

The success of the auto-enrolment project is judged in terms of regulatory compliance and employee apathy. The opt-out rate is low because nudging is working., regulatory failure is low because employers are aware of their “duties”. This is not a project that has – as yet – captured the popular imagination.

Auto-enrolment – tomorrow’s challenge not today’s success story..

However, the pensions industry is starting to wake up to the possibility that it might have a public policy success story on its hands and is keen to grab whatever positive PR it can (for itself). Follow this link to hear Ruston Smith of the NAPF claiming the success of Auto-Enrolment is down to the hard work of his audience (NAPF members presumably).

The difficulty for the NAPF is that they have absolutely no part to play in the extension of auto-enrolment beyond their membership to the 1.8m employers who have no pension. Their quality mark, PQM is fine for BAE Systems, the BBC and Taylor Wimpey who they advertise on their landing page, but look at the news feed – on August 14th, the latest piece of pensions news was from May 20th. At a time when things are moving fast – the NAPF and PQM aren’t moving at all.

When its CEO can start a talk in the spring of 2015, “with auto-enrolment almost over…” , you know there’s a disconnect.

Auto-enrolment has done nothing to revive DB

The truth’s auto-enrolment is no more than a platform which ensures that people can be involved in pensions. It puts people and companies that have been excluded, in the same place as the BAE, BBC and Taylor Wimpey.

But if everyone is on the same platform, what incentive is there for employers to return to pensions with a sense of pride? The appetite of corporate Britain to take on any kind of guarantee (even if its only a promise) has led to a total lack of enthusiasm for CDC as an alternative to current DC workplace pensions.

The only engagement between DB pensions and auto-enrolment in the corporate sector was when WM Morrison enrolled members into a cash balance plan and Tesco countered using their career average plan. Tesco have done a u-turn and reverted to a standard DC structure, while Morrisons continue to enjoy the short-term cashflow benefits that mean many staff are not having to be enrolled till 2017. We wait to see what happens then.

Employers are walking away from pension governance

The idea of an employer establishing a pensions trust for staff is as obsolete as DB. Master trusts fulfil the duty of care by proxy, the IGCs do the same for Group Personal Pensions and Stakeholder Plans.

While consultants continue to promote governance committees at employer level, it is increasingly difficult to see what effective governance they can do – certainly in relation to improving the member outcomes. What influence a governance committee has is based upon current assets and future cashflows. While the grandees- the BAEs , BBcs and Taylor Wimpeys can still do their willy-waving, for the vast majority of SMEs and micros have no-one shouting their corner other than the fiduciaries of the providers (and Government).

How do we re-engage employers?

Here’s a simple blueprint

  1. Start by making sure that the workplace pension is fit for purpose- an employer can select the best plan it can without a great deal of fuss.
  2. Focus on the things that employees can do for themselves, chiefly save sensible amounts.
  3. Engage and educate employers in what “sensible amounts” means – and it will mean different things to different people.
  4. Empower people to save by making it easy to contribute through payroll and easy to see the impact of their saving online (on whatever device they choose)
  5. Make sure that people become addicted to this by establishing and maintaining a budget to engage, educate and empower staff.

This isn’t rocket science, the rocket science is going on elsewhere. We shouldn’t be asking employers to become pension rocket scientists, in fact we want pension managers who can focus on the 5 simple tasks above.

Employers will become re-engaged with pensions because they can see their staff re-engaging with pensions. The circularity of this argument is a problem. Most employers see employee apathy towards pensions as a clear signal not to bother.

The consultants (and to some extent the Pension Regulator) have to move on from this insistence on payroll compliance towards an engagement strategy that includes employers and employees.

Most of all, we need Government to act to make pensions more engaging. After years of timidity , this is finally happening. The Pensions Green Paper could turn pension tax around incentivising people to save rather than putting them off. The FCAs approach – put forward in the recent Financial Advice Market Review – is pointing advice back in the right direction while the DWP and FCAs ongoing work in nailing “value for money” is (slowly) getting there.

We have yet to properly deal with the way we organise people to spend their savings, people need a “spending default” and I hope that the Defined Ambition project will eventually deliver them one.

We are not there yet.

But I genuinely believe we can and will restore confidence in pensions. Employers have a huge role to play in this but it’s not the role they have traditionally played. The employer is now a facilitator, engaging, educating and empowering staff. It would be nice to see more employer contributions to DC, but better still to see staff choosing to pay meaningful contributions themselves.

Posted in auto-enrolment, Liability Driven Investment, pensions, Pensions Regulator, Popcorn Pensions | Tagged , , , , , , , , | 1 Comment

Simplifying AE – why the workforce assessment IS worth it


The Government is calling for ideas to simplify auto-enrolment. 

I had an interesting discussion with a senior payroll policy lobbyist yesterday. She argues that the “workforce assessment” is too problematic to become part of the normal payroll function of Britain’s 1.8m smaller companies and that we should instead auto-enrol all employees.

I can see her point, nobody told payroll operatives they were signing up to become pension administrators – let alone pension managers. If they were working for LRT, no doubt we wouldn’t have been paid these last few years!  Apparently payroll people aren’t happy and are threatening to stop being payroll people and be something else.

I will return to the issue of payroll morale at the end of this blog, but let’s try to remember what the workforce assessment is there for.

Here’s the point…

  1. It stops the very youngest and very oldest workers from being automatically enrolled into a workplace pension
  2. It stops those who aren’t ordinarily working in the uk from being enrolled
  3. It stops those who earning too little from being enrolled.

The point of excluding some people is to find the right balance. We are trying to enrol the right people at the right time of their lives. This is useful for employers and it is useful for employees.

The workforce assessment is not an elaborate game of snakes and ladders devised in Whitehall to trip employers up. It is not a cruel trick played on employees to force them out of welfare and into self-dependency.

Auto-enrolment is about finding the right balance between “reasonable force” and the natural libertarian principles that underlie British democracy.

Is it too complicated and can we simplify?

The devil’s in the detail, and here’s the detail about how you work out if someone’s working for you. In my opinion, this is where simplification can be achieved. Read these detailed guidance notes and you realise that you are walking through a legal minefield, not once, but every pay period.

There is scope for simplification in this detailed guidance and better minds than mine are working hard to ease the plight of those who have migrant workers, employ seafarers and those who work on oil rigs and the like.

The core principles of the assessment are simple and sensible

But as for the core eligibility criteria, age and earnings, I think there is general consensus that these are right.

The current pattern is accepted, understood and is increasingly coded into payroll processes either through the core software or through third party software (known as middleware).

To remind everyone,  here’s how you look at your staff by age and earnings.

Monthly gross earnings


Weekly gross earnings


From 16 to 21

From 22 to SPA*

From SPA to 74

£486 and below

Has a right to join a pension scheme 1

£112 and below

Over £486 up to £833

Has a right to opt in 2

Over £112 up to £192

Over £833

Has a right to opt in

Automatically enrol 3

Has a right to opt in

Over £192

Figures correct as of 2015/2016. *SPA = state pension age

1 Has a right to join a pension scheme

If they ask you to, you must provide a pension scheme for them, but you don’t have to pay contributions.

2 Has a right to opt in

If they ask to be put into a pension scheme, you must put them in your automatic enrolment pension scheme and pay regular contributions.

3 Automatically enrol

The long term solution for payroll people

Those are the rules and millions of employees are being assessed every pay period by large and medium sized employers.

Life’s complicated because state pension age is a moving target, because the lower end of band earnings no longer corresponds to the top of the nil rate income tax band and because most people have variable earnings which have to be treated in a special way.

But the point is that you can now get workforce assessment software that does the heavy lifting for you and it doesn’t need to cost the earth. will allow you to do an immediate assessment for freetry it here. This is not the kit to do the work every month (you wouldn’t want to be faffing with CSV files as we still have to)!

And this brings back to payroll. At the moment , many payroll people (agents and in-house) still have to work manually – cutting and pasting- downloading files and sending those files- often by unencrypted email -from place to place.

These problems can and will disappear when payroll software companies provide a way for payroll to talk with pension providers using proper data integration techniques. This means moving to the straight through processing of data using proper encryption and with data passing in and out of systems through data gateways (API technology).

Linking websites this way is well underway, it is made easy by everyone employing common data standards (that should be a common data standard but certain providers still want to use their own data standard so we have to have more than one).

The Pension Regulator’s position

Yesterday, the Pension Regulator published a response to a consultation on what could be done for the smallest employers (what they call the micro-micros) who don’t use proper payroll software but pay people using a spreadsheet or some such back of an envelope technique.

These people need a back of an envelope workforce assessment tool and the Pensions Regulator has decided to build one for them to use.

We think tPR have got this response about right (to use the parlance – it is proportionate). They conclude that if these micros were to do this work manually, disaster would follow.

The consultation responses indicate that a high proportion of (micro) users would not seek the use of commercially available software. Attempting to assess their workforce and calculate contributions manually could lead to errors, burden and non-compliance. For this reason, we believe there is a need for a tool to mitigate the compliance risk.

We recognise that the existing payroll provider market offers a range of either free or low cost solutions that include automatic enrolment functionality. (Micro)users, if they wish, can currently find and access a range of these products through lists and links hosted at payroll-software/overview ….

We will continue to offer information about the range of options that (micro) users should consider using including payroll software.

Doing the workforce is a pain, it is the job of industry (and for the smallest employers perhaps tPR) to make is as painless as possible. It is the job of Government to simplify rules where it can to reduce the pain further.

But it is not needless pain. The point of workforce assessment is to make sure the right people are paying the right contributions at the right time. We have invented a world-class system and the world is watching as we refine that system to be even better.

Don’t throw the baby out with the bath-water

It is not a good idea to throw the baby out with the bath water- we do (from time to time) need new bath water. Now is such a time.

Posted in accountants, advice gap, auto-enrolment, DWP, pensions, Pensions Regulator, risk, Ros Altmann, welfare | Tagged , , , , , , , , , , , , , | 1 Comment



Addiction is not a word that resonates positively.

But we had a discussion yesterday centred on getting people addicted to properly managing their money, in which the word seemed entirely appropriate.

People get addicted to courses of action resulting from a need to feed some personal craving. If that craving is destructive, as most addictions are, then the addiction needs be fought. But what of positive addictions?

A Christian may be addicted to prayer, or to attendance of church, my CFO is addicted to the perusal of time sheets and I must accept I would find it hard not to blog in the morning. Others are addicted to Facebook or Linked In and these obsessions last so long as the objects of our addiction remain absolutely relevant to us.

When the relevance wears off, then our attention waivers. The difficulty that most social media sites have is not in attracting custom, but in keeping it.

Constantly relevant?

The constant reinvention needed to keep a subject  relevant, to maintain the level of user addiction is the long-term challenge of the financial educators.

It is easy to engage, harder to educate but to maintain the levels of education and engagement and engage over time so that good financial practices are hard-coded into people’s brains involves a great deal more than good intentions.

That is why most financial advisors struggle to get clients to renew fee contracts year after year, why subscriptions to websites are rarely maintained more than a few months and why most workplace financial education programs receive remarkable initial feedback , but have little lasting impact on participant behaviours. They lack the wherewithal to addict.


Speaking to my friends at MoneyHub about this, we talked about a rule of 95 where 95% of what you do , remains the same, but the 5% that changes is the nicotine in the cigarette that keeps the punter coming back for more. It’s the mojo- the x-factor, the magic ingredient that makes and keeps a proposition continually impelling.

MoneyHub are currently talking about it as “financial wellness” a phrase that probably strikes a chord with the millions of us obsessed by diet, nutrition, exercise and health. I discovered yesterday that the funding for MoneyHub is linked to healthcare initiatives such as “multiplier” and “vitality”.

What is the secret to getting the addiction in place? According to MoneyHub CEO – toby Hughes- it’s all about the first three minutes you spend with a proposition. He reckons if he can give his prospective customers a good first three minutes, he can keep them for the next three hours- easily enough to create the germ of an addiction.

BTW- I can see this as intuitively the case though the majority of “wellness” advertising makes me shrivel like a snail as I reflect on my sorry lifestyle! I sense that a sense of humour is needed to attract me to a gym, something i find the wellness industry rather short of!


Technology to the rescue?

But the maintenance of relevance is a lot harder and depends on financial education continuing to educate and empower. This is where technology really cuts in. New means of capturing data, encouraged by the Government’s demands for more open access to our financial information is meaning we can now look at most of our finances on a single screen with a few strokes of our fingers.

I tried it yesterday using MoneyHub’s new systems (still in Beta). Because the data is constantly live, it draws me back to check, just as my wordpress stats, linkedin connections and Facebook “likes” do.

If this sounds very ephemeral, it is, there’s no doubt that what may work in Q4 2015 (when the new stuff goes live) will look as outdated in Q4 2016 as the mobile phone brick. The pace of technological change is (IMO) accelerating, especially in the areas where FinTech is trying to go.

Shakespeare’s had no problem staying relevant!

I wrote recently about this need to constantly be tomorrow’s prototype and to accept that no sooner have you scaled one summit than you must move to the next. Everything on the web is a prototype.

But driving back from Bristol yesterday with my friends Mark and Jenny, we were discussing Shakespeare. Jenny asked me “hadn’t I got Shakespeare sorted at college”. I thought of a couple of recent productions I’d gone to and realised that the Shakespeare I knew at college was different from my Shakespeare today.

If you get it right- really right- as Shakespeare did all the time – the writing – or should I say “righting” remains as relevant because of the 95% core of deep relevance.

For something, whether it is MoneyHub or First Actuarial’s financial education programs or to remain valuable over time, the 95% core proposition must have fundamental value (in the old days we’d have called this “truth”). Perhaps the best word is “integrity” though any word loses its “validity” if sloppily used.


Facebook and the focus on “you”.

I’m drawn by this 95/5 formula for positive addiction. It is a useful way of thinking about sustainable relevance for a customer base. Of course the 95% is harder but it is the 5% of immediate relevance that requires ongoing attention.

Toby Hughes suggested that the reason why Facebook has remained totally relevant for so long is that it is a website totally dedicated to “you”. Designing something with total dedication to “you” and not as a means to reward “me” is Facebook’s brilliance and (if Toby has its way) , it may be why MoneyHub succeeds where thousands haven’t.





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Why I want to be old – rich and pay no tax!

Super tax

There’s a famous story, now fading from popular memory about Strand, a brand of cigarettes in the sixties. Strand came out with a strap-line

“you’re never alone with a Strand”

It killed the brand stone-dead. People associated smoking a Strand with being alone, being a loser – with failure.


The words and phrases we use, we get used to. Phrases like “tax-relief” and “retirement income shortfall” and “poverty in old age”. The encouragement we give people to save is couched in similar language; we should “save”, we should “avoid” and we should “plan”.

The language we adopt to encourage people to spend on their later years is couched in negativity. The people we should be encouraging are being asked to consider their later years as a time of financial hardship. The business of building up a big-fat retirement pot is being promoted as an act of denial.


And along comes Johnny- chancellor with  a new idea. We’ll encourage people to think of the money we spend on our old age as 100% tax free to us. Like our ISAs, 100% of what we put by , will be ours to spend as we like, without having to pay money to a future Johnny Chancellor.


And guess what? According to a poll last week by PWC, people prefer the idea of paying tax today rather than tax in retirement, especially if they are being encouraged to do this by “BOGOFF” fiscal incentives.


Here’s an extract from PWC’s press release

New PwC research reveals that people want their pensions to be treated more like Individual Savings Accounts (ISAs).

PwC surveyed nearly 1,200 (1,197) working adults following George Osborne’s consultation, launched in the Summer Budget, to radically review how pensions are taxed. When asked to choose the most appealing tax scenario for their pension, only just over a quarter (27%) picked the current system – where people and their employers receive tax relief on their pension contributions, and the pension is partially tax free at retirement with the remainder being taxed.

Moving pensions towards a similar tax treatment as ISAs, where you contribute out of post-tax income and any returns are tax free, is by far the most popular preference. Four in 10 respondents chose this answer as they say they would rather be taxed while they are working, than in their retirement. People also say it would help them better plan for their retirement as they won’t have to factor in tax deductions. Only one in seven people say the current tax exemptions on pension contributions incentivise them to save.

Six in 10 people say that constant changes by the Government to how pensions are taxed is the biggest barrier putting them off saving more into their pension. This is followed by people not understanding how much they need to save for an adequate retirement and the pensions system being too complicated.

The research reveals that the majority of people also don’t understand how pensions are taxed, with two thirds of people surveyed not able to correctly identify the current system.

…..Raj Mody, head of pensions consulting at PwC, said:

“The reality is that when it comes to tying up money for the long-term, people need an incentive. Otherwise why would you bother saving for your retirement when faced with more immediate pressures on your finances.

“We believe any new system should include a simple to understand incentive from the Government for retirement savings that would allow the lifetime and annual allowance tax regime to be abolished.”

So let’s be clear; even though most people will pay less tax under EET than TEE, people want to pay tax upfront so they save on tax later.

There is an important behavioural motivation to this and it comes back to problem with “you’re never alone with a strand”. People do not want to be told that they will be paying less tax in retirement than they are now because they don’t want to think of retirement that way.

They aspire to be rich in retirement, they aspire to getting a big fat tax-bill

Super tax

and most of all they aspire to ripping it up and telling the tax-man where to go. Like Tsipras!

tax bill

That’s freedom!


The language of freedom

The Chancellor is inventing a new language with which we can talk and think about pensions, it is a language that replaces “tax-relief” with “tax-incentive”, that swaps “save” with “spend” , “must” with “could” and which promotes “freedom” not “avoiding poverty”.

It is a language of aspiration, and however phoney you may think that aspiration, nearly twice as many people would rather aspire to be richer than in retirement than face the reality of being poorer.

Which is why the Chancellor will win, and the bean-counters will lose.

If people are encouraged to get stuck in and become self-sufficient – if the trick works … then I’m for “phoney aspiration”. Long-term investment turns “phoney” into “reality”.

Raj no bean-counter…

Bond 2

James Bond


Raj Mody








I do not include my good friend Raj Mody as a bean-counter, not least because he is an actuary and has the imagination to empathise with popular sentiment. PWC employ more actuaries than any organisation in Britain and actuaries have the happy capacity to see into the future.

Where I stand on this

I have written lots about a future based on aspiration, about what I call “Popcorn Pensions“. I share the view of the Chancellor and Raj and most of the population that I would rather spend on my later years with the prospect of a big fat pot of money as my reward than save to buy an annuity.

I don’t want to be “alone with a tax-bill” and I want to buy into a tax regime, which like ISAs, I can be sure of.

Will I benefit from a change to TEE? Almost certainly not – in financial terms. But does that worry me – no – not really! Actually I’d rather be certain about what’s going on , pocket my incentives and look forward to writing “zero” on my tax assessment than continue to live in a world of LTA, AA, PIP, Salary Exchange and marginal rate tax -relief.

If you want to read the Pension PlayPen submission to the Treasury on the incentives needed to get people to spend on old age, press here.



Posted in pensions | Tagged , , , , , , , , , , | 3 Comments

“A question of trust”- accountants and auto-enrolment pensions.


I’m not going to quote Einstein’s definition of insanity as that would be madness. To understand how tactical short-cuts spiral into destruction look at what PPI has done to the share price of our high-street banks

This blog is for accountants who think when a client says

“I’ll leave it to you”

they can park up the van , unload the cheapest tat from the financial cash-and-carry and charge a premium price for sorting out the problem.

Even Watchdog would be amazed at the some of the conversations I have been party to.

For the avoidance of doubt

It is absolutely true there are 1.8m employers to stage auto-enrolment

It is true that most 2/3 of them don’t know when and currently probably don’t care

It is true that they hope that some magic hand will come down in Pythonesque fashion and sort the problem for them and that hand will  have “accountant” written across the knuckles.

But that doesn’t mean that the financial services industry can gorge itself at the expense of another bunch of muppet-customers.

People want to give this problem to their accountants because they trust their accountants to do the right thing by them. Like they used to trust the man from the Pru and their Bank Manager.

The accountancy profession is last profession standing when it comes to front-line integrity. You accountants run the bureaux that pay our staff, they audit our accounts and you are the trusted business advisers we turn to when scared about VAT, RTI, NI and now – pensions.


The risks being taken

But everywhere I look, I see groups of accountants preparing for auto-enrolment as if it were a financial cattle market. Captive cattle (aka clients) get herded into pens and leave branded with the workplace pension that the financial farmer selects. The pre-selection processes I am witnessing can be laughable.

The  reputational risk to the accountancy professions of endorsing workplace pensions that subsequently fail is immense. Yet I see little or no due diligence being conducted on the business models of smaller master trusts.

The short-term operational risk of choosing a workplace pension that doesn’t work with the payroll system of a small employer is that the employer quickly becomes uncompliant and risks fines , reparation costs and ignominy with staff

But the sleeping giant among risks must be that the outcomes of a pre-selected scheme is proven to be substantially below that of its peer group. Typically these outcomes are as a result of poor value money – which could have been spotted at outset by due diligence.

This impact will only appear over time and many practitioners may consider this is an inter-generational risk transfer. This is ultra- stupid. The value of an accountancy practice is primarily based on good-will and that based on a reputation for good work. The damage of poor work on pensions will be reflected for decades to come in the valuation of accountancy practices.

If accountants want to see the economic damage of poor due diligence, they should look at the valuations put upon Britain’s IFA networks, many of which cannot be sold for the toxic liabilities of past advice awaiting judgement from the financial ombudsman.

In case there is any doubt about this, as soon as a member gets a whiff of scandal about their workplace pension, ambulance sirens will be sounding. The buck will be passed from member to employer to adviser and it will stop where the PI is most accessible.


Risk mitigation

There is a simple means of mitigating these risks- it is called “due diligence’. Before any “pre-select” deal is done , we urge accountants to get a due diligence report on the provider of the workplace pension, preferably from an independent firm of pension consultants with professional credentials.

Better still, ensure that employers who do not want to be penned and branded with your selection of a workplace pension are directed to a provider of meaningful choice. The cost of digital choice is not high, I have seen proper digital comparisons made available at less than £100 per employer.


Leadership required

Now is a time for the accountancy profession to show leadership and not to descend to the levels of behaviour that created the pension, endowment and PPI mis-selling scandals. We do not need a workplace pension mis-selling scandal and it’s important that the leading accountancy trade bodies ICAEW, ICAS, ACCA and ICB among others, ensured that due diligence is carried out and choice- where needed – made available.

Above these bodies is the Pensions Regulator. The Regulator too has a role in ensuring that the products pre-selected for SMEs and Micros and Micro-Micros are selected with due diligence. If a master trust is selected, the MAF should be in place, or be about to be in place (let’s let NEST off!). The MAF is a joint assurance framework using the Pension Regulator’s own governance standards and applying them to the Assurance Framework of the accountancy profession. Surely any accounting trade body, marketing group or additional practitioner would choose a MAF accredited workplace pension over one that neither has nor has intention of getting the MAF.

And above all is the DWP and its Pension Minister Baroness Ros Altmann. I hope that – should there be no improvement in the quality of guidance being offered employers, she will step in and set down some firm rules, either through tPR – or in the last resort, in legislation,

“A question of trust”

The Nest Insight 2015 project identified accountants as the key business advisers on auto-enrolment and clearly linked this to employers trusting their accountants above all other advisers.

There is an opportunity to repay that trust, an opportunity to abuse it. I see many examples of that trust being about to be abused and that abuse must stop.

Not all workplace pensions are the same. Shell is not the same as Allied Steel and Wire , a master trust that has achieved MAF has demonstrated commitment over one that hasn’t. Simple credit checks can weed out unsustainable business models. For more detailed analysis of the investment governance, member services and the capacity of each provider to interact with payroll and HR – specialist due diligence is needed (and available).

There is no excuse for accountants to endorse poor workplace pensions. If those poor pensions fail, the blame will revert to the organisation behind the pre-selection.Whether the risks are reputational, litigatory or even criminal, they are risks that accountancy trade bodies, marketing groups and practitioners should not be taking.

This is a question of trust, and we trust that the accountancy profession will wake up and do its due diligence.


Posted in accountants, actuaries, Management, pension playpen, pensions | Tagged , , , , , , , , , , , , , , , , , | Leave a comment

Bringing down the cost of advice #FAMR

HM Treasury

The Financial Advice Market Review asks whether Britain can bridge the advice gap for those people who “want to work hard, do the right thing and get on in life but do not have significant wealth”, strip out the political rhetoric and this comes down to..

examining the opportunities and challenges presented by new and emerging technologies to provide cost effective, efficient and user friendly advice services; and

encouraging a healthy demand side for financial advice, including addressing barriers which put consumers off seeking advice.

If advisers think this is a review about bringing down the cost to them of FSCS and of Regulation, then they don’t understand politics. It may be that the creation  of “a sage harbour” in which advisors can operate without fear of litigation is part of the solution. But the big issue is that the Government is determined to democratise advice as it is democratising pension ownership.


I meet with IFAs and try to understand their business models. Most IFAs I meet are segmenting their client bank and choosing to do the majority of work for the wealthiest 20%. This is nothing new, I was taught to do this in the eighties by Hambro Life.

Whether you are charging fees or being rewarded by a percentage of the funds you manage for a client, there is value at the top and bad debts at the bottom.


The Treasury and the FCA see a proportion of the population that have the means to pay for some advice, but do not fall into the “wealthy” category. They worry that this part of the market is being ignored by Financial Advisers and they want to create conditions where people in this market are encouraged to pay and advisers encouraged to advise.

They’ve worked out that the key to the problem is technology. With technology, the question is not “how much does it cost” but “why do I have to pay”. The consumer’s starting point is that information is free and it is only the application of that information that has value enough to be priced.


The central question for IFAs is whether they want to advise in the middle part of the market, adopt the new technologies and become part of the Treasury and FCA’s solution.

I suspect that if IFAs don’t , they will find this part of the market being besieged by insurers who have the deep pockets needed. Looking at the strategy of Momentum (a South African insurer) using “MoneyHub” and LV (formerly Liverpool and Victoria) with “Clear Retirement Choices”.

The scale of investment made by these insurers in Financial Technology puts them on the front row of the grid. Sadly , most IFA propositions don’t have the funding to even get to the circuit.

It is possible (currently) for financial advisers to benefit from the spend of the insurers and smart advisers should be looking carefully at the opportunities they (currently) have to do so. This is my advice to employee benefit consultancies looking to develop their capacity as financial educators.

People are getting used to making decisions on line, to steal the brand of my friend Jerry, they need Financial Satellite Navigation to get them to where they want to be and they want to follow instructions to financial security as simply (and cheaply) as they would from their TOM TOM.

The Treasury and FCA look determined to make this happen. As with auto-enrolment, it is those parts of the market not served by effective advice that the Government are worried about. I don’t think they are wishing to cut advisors out but to give them the opportunity to make their living in a different way.

I suspect that the majority of advisers will continue to work with the wealthy, but I see the opportunities for new advisers- without access to wealthy clients – aligned to the Government’s agenda.

Anyone with an interest in the strategic development of the advisory market in this country, should be following very closely , the development of this Government initiative.

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What is FinTech and why does it matter to David Cameron?


Dave does a skinny latte in Shoreditch High Street

Skinny Latte for Cameron

On his trade trip to the Far East, “FinTech” was to David Cameron what “Prudence” had been to Gordon Brown.

So what is FinTech and why does it matter so much to our Prime Minister that he was flogging it all over the Eastern hemisphere?

Financial Technology is nothing new, 40% of London’s workforce, according to Mayor Boris are engaged in it and I’ve been lugging a laptop round with me since the mid eighties,

But what David Cameron is getting excited about is the  new wave of financial innovators that he sees powering the British economy and leading the world.

To an extent he is right, Britain is leading Europe in developing applications that assist our activities of daily living. Europe still lags America but pound for pound Britain is boxing well above its weight.

With Cameron in the Far East were an eclectic mob of FinTechnicians, collectively known as Innovate Finance. Innovate Finance is a lobby group which I suspect spends far too much time in the Ace Hotel Shoreditch High St, Google Labs and the Innovation Centre half-way up Canary Wharf Tower.

Innovate Finance is supported by all the big UK financial institutions but it’s really about the start-ups and growth accelerators and all the flotsam and jetsum that have got first and second stage funding and may (note may) be the next big thing.

This is absolutely as it should be. Pension PlayPen would like to be on the caravan but at £1000 pa for a start up, the ticket’s too pricey, there’s a lot of financial innovation you can buy for £1000 and I’ll do my lobbying on the blog (thanks very much)!


Technology that gets used

For me, Financial technology gets exciting where it’s being driven by a genuine need. Uber came about because of the unsatisfactory state of taxis, Pension PlayPen came about because of the disintegration of corporate pension advice. The really good FinTech companies I come across, Sammedia, MoneyHub and Nutmeg are applying themselves to real-time financial problems people have, not bathing in the light of their shiny algorithms.

As the boss-man at Nutmeg told me , if my stuff isn’t getting used- it’s useless.

The vast majority of the applications that get built are pure vanity. CEOs get excited by having an app and showing it off to their fellow CEOs as a badge of honour. The best apps are not there for show , but there to get used, indeed Moneyhub build their apps for mobile use and build back to laptops and full screen PCs – which are very much secondary technology. Moneyhub’s research suggests that most people would prefer to do personal finance stuff away from the workplace in the comfort of their own hands.


Technology that is proportionately regulated

The joint paper from the FCA and the Treasury launched yesterday, is informed by the wider global debate about what can and cannot be done on a laptop and handheld device.

Without the oversite of a physical adviser, can these applications be properly used to take financial decisions?

In some markets , it seems almost impossible that they won’t. The 1.8m employers staging auto-enrolment are not all going to sit down and sort matters face to face with an adviser, there will have to be FinTechnability.

But there is nothing to stop FinTech being abused. Dick Dastardly used to stand at the junction of the wacky-races, railroad and send his rivals off to certain oblivion , by switching the points. Much the same can be done with the “UX” (user experience/employer journey) on a FinTech excursion.

This week , the Pension Regulator has a free pass and is road-testing Our video -while not quite viral – is well watched and at one stage yesterday we had 542 concurrent users of our workforce assessment! The latter number may have been distorted by 3rd party  stress -testing, but this shows that we are receiving a degree of due diligence and this is a sign of the market “self-regulating”.

Why does FinTech matter

I suspect that David Cameron, like the CEO, is more interested in what FinTech does to the brand than how it helps the consumer. Right now it is trending.

But FinTech is simply the way to get to a better place, the better place is what consumers have their eyes on, not the mode of transport.

For intermediaries, who help in the transportation process, there needs to be proper due diligence- from Regulators and the trade bodies they rely on.

And for the entrepreneurs who create the means of transport, FinTech has to be about outcomes. The need must come before the greed.

Cameron fintech 1


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WOW – RDR II just broke out!


The FCA have launched what they call “a major new review looking at how financial advice could work better for consumers”.

A quick scan of the Terms of Reference of this Financial Advice Market Review suggests it is as ambitious in its scope as the Retail Distribution Review that preceded it.

The review will examine

  • the advice gap for those people who want to work hard, do the right thing and get on in life but do not have significant wealth;
  • the regulatory or other barriers firms may face in giving advice and how to overcome them;
  • how to give firms the regulatory clarity and create the right environment for them to innovate and grow;
  • the opportunities and challenges presented by new and emerging technologies to provide cost effective, efficient and user friendly advice services; and
  • how to encourage a healthy demand side for financial advice, including addressing barriers which put consumers off seeking advice.

Many of these questions have pre-occupied my blog for the last five years and it is great that the Government are now addressing them holistically in what appears a sensible way.

In its scope the review will ….

seek evidence from consumers about the barriers they face in seeking advice; the value they place on it and how easy it is to understand where advice can be found and what it means.

While focusing on consumer financial services and products, the review will also look at the provision and effectiveness of advice across retail markets to assess whether differences in regulatory requirements around advice lead to unintended consequences for consumers and firms.

It is also possible that a number of the review’s recommendations could have applicability in other financial services markets.

The timeframes of the review are tight, it will be completed by the end of the year and will be published in time for next March’s budget.

Amongst the many outputs it will create , I’ve picked out four

  • empower and equip all UK consumers to make effective decisions about their finances
  • facilitate the establishment of a broad based market for the provision of financial advice to all consumers
  • create an a regulatory environment which give firms the clarity they need to compete and innovate to fill the advice gap
  • an examination of the role that might be played by regulatory carve-outs such as a so called safe-harbour

With particular reference to that last bullet, it’s particularly important that the Review will

also consider the interplay between the regulatory framework for advice and the role of the Financial Ombudsman Service (FOS) and the Financial Services Compensation Scheme (FSCS) in redress

APFA have picked up on this particular aspect of the Review, but while the Review looks set to provide “long-stop” protection on advice, it will undoubtedly ruffle feathers too,

The Pension PlayPen’s really pleased this review is happening now, in advance of the advisory crunch on auto-enrolment and in time to avert the looming crisis on pension transfers that is threatening to  derail the pension freedoms project.

This looks like the FCA learning to fly!

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Ten things everyone should know about workplace pensions









Pensions are difficult; how can buyers choose one from another?

Look from the list of categories at the attributes that IFAs consider important when deciding on a pension?

Confused? …… I was!

Screen Shot 2015-08-03 at 06.15.21The traditional world of workplace pension plans, where money is deducted from payroll and paid back later seems a million miles from this “review of pension service”. I admit to knowing little to nothing about most of the winners in this game, I suspect that many of my readers will feel the same.

But this is an extract from the May 15th Defaqto review of Pension Service, you can download a copy for yourself here .

We must agree with what Ben Heffer, Defaqto’s Life and Pensions Insight Analyst that

Value for money, ease of doing business, integrity, financial strength and investment options matter the most to financial advisers when dealing with pension product providers.

DeFaqto are undisputed market leaders in the advisory market. But what matters most to the bosses of Britain’s UK 1.8m employers and the new intermediaries- recommending pensions to employers as accountants, payroll managers and as the product buyers of the major employer trade associations?

When the OFT examined the way that employers bought pensions for their staff, they were scathing about the quality of decision making which they characterised thus


So what is being done to help employers buy better? I personally don’t think that the service level table produced by Defaqto is targeted at the purchasers of workplace pensions, but if Defaqto aren’t publishing relevant research, where can employers go?

Conventional sources of information – Which – Money Saving Expert and the Comparison Sites are offering little help comparing workplace pensions – why?

Here is what the Pensions Regulator has to say on the matter– which is more a reflection on the sorry state of the traditional market , than a real attempt to help…This extract shows just how confused everyone seems to be.

Screen Shot 2015-08-03 at 06.53.29


The long and short of this is that there are plenty of schemes but not a lot of help on which one to pick! As the Defaqto analysis shows, the IFA community are advising on wealth platforms which are a million miles away from the workplace pensions which the Pensions Regulator wants to research

The biggest problem is that bosses are simply not being taught the questions to ask. The second biggest problem is that there is no one there to answer those questions if they had been asked. Fundamentally, there is an issue with research.

There is insufficient research on the actual performance of workplace pensions.

In the second half of 2015, Pension PlayPen will be conducting a major market review of the providers with market share providing pensions to staff under auto-enrolment. We are starting by establishing what are the questions that the buyers of workplace pensions should be asking.



 So here is out list of the top ten questions we think bosses should be asking!

  1. Who will offer my organisation a workplace pension?

  2. What’s the chance of the provider I choose today, being around to pay pensions tomorrow?

  3. How do I work out  what “value for money” means?

  4. When I look at value for money how can I work out what my staff really pay?

  5. When I look at value for money , how can I work out what value my staff get?

  6. How can I tell if my payroll people will be able to work with the provider I choose?

  7. What help will my staff get in saving for the future from our pension provider?

  8. Will our provider help my staff choose how best to spend the money?

  9. How will my provider help me and my staff get the best deal on tax?

  10. Where do I go to get help on these questions?

If you’re interested in helping people buying pensions make a better fist of it, get in touch with and have a look at this video..





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Auto-Enrolment needs more Training and less Selling

Tomorrows world

The standards adopted by those administering auto-enrolment have been high. Compliance to some complex problems that payroll, HR and pension providers have faced has been impressive. Sure there have been failures but countries (such as Ireland) reviewing the progress of auto-enrolment so far, should note the very high levels of technical expertise that is already in place.

As we move to smaller companies, technical complexity reduces and is replaced by a new challenge- scale. The new chart produced by the Regulator show just how back-end loaded the logistical challenge will be.

staging graph

The purple lines are those that now apply and they show that the biggest chunks of work are now in 2018 not in 2017.

The 500,000 new “employers” probably don’t even consider themselves bosses yet, They may be no more than shell employers in the incubation stage but they will have to consider auto-enrolment just as Tesco and Sainsburys.

Indeed, auto-enrolment and the adoption of a workplace pension may be more of a challenge to owners who may never have considered a private pension for themselves – let alone their staff.


FINTECH to the rescue?

It would be nice to think of Financial Technology delivering neat solutions to tomorrow’s problems. It was comforting watching Tomorrow’s World in the 1970s – technology will put us right- maybe!

Here is our latest training video , designed to help those engaging with pension choice use our Choose a Pension System.

It’s good – but it’s only had a couple of hundred hits on youtube, because it hasn’t engaged with its user-base.

This is the problem with most FINTECH solutions, they sit unused on the shelf because they are not properly applied.

To apply what you learn in our video , you must first be aware you have a problem, be engaged in solving it and be ready to get educated. None of these things comes naturally when it comes to pensions!

Less selling – more training

To get to the point that people are going to want to spend ten minutes of their lives learning how to use , they need to re-train, re-order their brains. Payroll administrators need to start thinking of themselves as Pension managers, accountants with responsibility for payroll must now take responsibility for pension delivery and IFAs must become experts not just in individual but fiduciary decision making.

This is not quite the same as setting up a pension for yourself, this is about the retirements of other people.

Managing this quantum mind-shift is not impossible, but it needs empathy and sensitivity beyond the current capability of youtube or the programming capabilities of You can sell ideas and systems as much as you like, but you can’t sell the need to use them, that comes from education and empowerment and that needs training,

Which is why the majority of the financial software designed to help auto-enrolment is already obsolete, it never touched the people it was meant to help.

The market for training

Those who get the need for FINTECH solutions, people like ourselves and ITM, pensionsync  FSN, defaqto and efileshare are selling vapourware unless it is applied in action.

To get our software to market will mean a massive push of human resource around the country. We may sit in Shoreditch High Street at the Ace Hotel discussing the algorithm but if you live in Barnsley or Barnstaple, have a business washing cars or minding infants, you need more than theory.

This is so not about “UX”

You need face to face contact with someone who trains you how to turn the application on and how to turn it off and the various stages in between. And if anyone describes what the person in Barnstaple or Barnsley is doing as the UX, you have my permission to kick them in the shins.

There is nothing so detrimental to FINTECH as people jargonising it. “FINTECH” is of course jargon in the first place – short for Financial Technology which in itself is an unpleasant phrase.

All this stuff should be kept in a jargon cupboard and kept under lock and key whenever “users” are around- the user experience.

Financial technology is not an end in itself

Like social media, financial technology is useless in itself, it is only useful in getting people from a bad place to a good place with the least possible pain. To promote the means of transport as the solution is to miss the point, the solution is getting to the good place.

Training is the means of getting to the solution and tools like are the means of transport which need training to use. But the tools are not the solution, they are the way to get there.

When we learn this properly – and it’s still not in my DNA- we will stop selling and start training. I’m pleased to announce that after working on a project since early April, I am finally getting to the point that that project will deliver something incredibly simple but massively important- a training program for financial intermediaries (including payroll, accountants and IFAs) on how to the auto-enrolment pension decisions right.

If you’d like to be a part of this project, either as a trainer or as a trainee, drop me a line on

And it really should be fun

Posted in First Actuarial, Management, Pension Freedoms, pensions, Pensions Regulator | Tagged , , , , , , , , , , , , , , , , , | Leave a comment

What employers can do to get their members better pensions

popcorn pensions

Popcorn pensions from the sunny uplands!

Yesterday I had a chance to talk with a large employer about what they can do to help improve the outcomes of their DC plans.

Influencing employees to get the best out of their pension savings means getting them to engage with the need to save, educate about how to save and empower them to get on with their plan.

Making sure that members get the most out of the contribution structure the employer’s put in place, make suitable investment decisions and spend their savings sensibly is something an employer can do. 

In fact it can be considerably cheaper and more effective to help employees do this for themselves, than simply throwing money at the contribution rate.

Give the man a fish and you feed him for a day, teach the man to fish and you feed him for ever.

When you look at the Pension Regulator’s 6 outcomes of good DC governance, you discover that half relate to helping members make better decision.

I’ve highlighted them

  • Appropriate decisions with regards pension contributions.
  • Appropriate investment decisions.
  • Efficient and effective administration of DC schemes.
  • Protection of scheme assets.
  • Value for money.
  • Appropriate decisions on converting pension savings into a retirement income.

I used to think that “protection of scheme assets”, related to trustee negligence (oops – where did I put those units) but recent events have proved that trustees and governance committees have a duty to protect members from themselves – this is the thrust of the Pension Regulator’s “engage, educate and empower” campaign to keep members away from scammers.

Face to face is best

In the past, we lumped all the above into a useless term “scheme communications” which generally consigned “engagement, education and empowerment” to a brochure that got flung in the bin along with all the other pension literature that comes a member’s way.

Many employers are waking up to the fact that you can really only get a member’s attention by getting them out of the day to day routine, in a room, with someone who knows what they’re talking about.

Our experience shows that there is no substitute for doing this- not fancy brochures, or videos or interactive games that sit on tablets or phones. Until you have got people’s attention, the rest is useless.

Fan as I am of face to face financial education, it can only be provided where the foundations of the saving- the savings plan – are properly constructed. Let’s look again at those six good DC outcomes

  • Appropriate decisions with regards pension contributions.
  • Appropriate investment decisions.
  • Efficient and effective administration of DC schemes.
  • Protection of scheme assets.
  • Value for money.
  • Appropriate decisions on converting pension savings into a retirement income.

This time I’ve highlighted what an employer can do to improve outcomes behind the scenes. This is all about taking care with the selection of provider and the management of that provider to make sure they do the business!

When this list was compiled in 2011, the Pensions Regulator still hoped that employers running schemes would be able to do this work for themselves , through governance committees or trust boards.

The Pensions Regulator now recognises this hope as forlorn. The OFT report confirmed what most of us already knew, that understanding value for money, creating structures to help people spend their savings and overseeing the administration of DC schemes are duties beyond all but a handful of employers.

This level of governance has been largely outsourced to “master-trustees” and Independent Governance Committees” who do the day-to-day job on behalf of employers. But this does not mean the employer should be complacent.

Employers still have a duty to choose the pension provider, this is a duty under auto-enrolment and it is not just a fluffy duty of care.

Getting the wrong provider could result in a suit of negligence from members, wilful choice of an inadequate or even a fraudulent provider could lead to proceedings initiated by the Pensions Regulator and followed up by criminal prosecution.

It is not just a duty at outset, every time that an employer is sending money to a workplace pension provider, they are validating that initial decision. Obviously , it is not pragmatic to conduct due diligence on a monthly or even weekly cycle, but it really is down to the employer to make sure that a decision made when staging auto-enrolment, remains valid in years and decades to come.

It is all too easy for employers to say this is beyond them, for many employers it will be, many more could bother but won’t. But if you are working for, or are the owner of an employer who has or is about to have a workplace pension, then you would be wise to make the most of it. For the sake of your staff, staff morale, productivity and ultimately the value of your business, it is worth paying attention to these issues.

Here’s our friend Greg Broomer of Johnson Fleming in a short video. Clearly we think alike!

Posted in Payroll, Pension Freedoms, pension playpen, pensions, Pensions Regulator, Popcorn Pensions | Tagged , , , , , , , , , , , , , , , , , , , , , , , | Leave a comment

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 “… 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 and 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 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):

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                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:

[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:

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 . 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 !

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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!


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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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Does drawdown need a charges cap for pension drawdown


This post was written a few months ago but never published. The main thrust is still relevant, the thrust is that we are better off building better and more relevant products than trying to squeeze drawdown into a shirt two sizes too small.

Labour is calling for a cap on drawdown charges from April 2015. It is easy to see why.

Currently there is a false market for drawdown with many customers paying as much as 4% pa for the management of their money.

Here is a charging structure we recently came across that I am told by IFA colleagues is not unusual

Discretionary fund management charge from adviser 1.5%


Underlying fund costs 0.8%


SIPP platform charge 0.6%


Transactional charges – converted to an AMC assuming an £80,000 fund (at outset) – 0.8%

This adds up to a whopping 3.7% pa! This does not include the incidental costs of running the fund which are charged to the net asset value. We estimate these to be a minimum of 0.5% bringing the total cost of the drawdown to 4.2%.

The current maximum GAD drawdown for a 65 year old with £80k in his or her fund is 5.5% . If we were to deduct the estimated cost of running the fund from the GAD rate you can see that there is not much income to be drawn if the fund is not to be depleted at a disastrous rate.

The question is whether this charging structure is sustainable- not in terms of its fairness to customers (it is palpably unfair) but in a commercial environment where market forces should even out such imbalances between the buy and sell side.

For Labour, Government intervention has always been more palatable than for the free marketeers of the right. Gregg McClymont has every right to point to April 2015 when a surge of pension money will be crystallised either into drawdown or people’s bank accounts.

If anyone was asked to pay over 4% pa in charges on a bank account (when they will be getting less than 2% interest, then they would look another way!

Small wonder that many will be taking their money out of pensions and into accounts where they feel they are being treated fairly.

So it is entirely right for a future pensions minister to demand some parity- at least till the market catches up.

I personally don’t see need for Government intervention because (unlike the purchase of an annuity), money invested in a drawdown policy can be taken away and placed in a more efficient decumulation plan.

The argument for a cap on workplace pensions was marginal but ultimately sustained by the argument that people could not be auto-enrolled into plans which offered bad value because of the poor purchasing by others (employers).

The decision on what drawdown plan (or drawdown alternative) into which to invest is one that has to be the responsibility of the person with the pension pot. People have to engage , get educated and empower themselves to take sensible decisions and the intervention of a Government could actually slow this process down.

Even more importantly, it could stifle the natural development of products to meet the new demand.

A cap could become a collar, creating a false market where the maximum and minimum charges are adjacent.

So although I am with McClymont and the Labour Party in drawing attention to the poor state of the drawdown market and the asymmetry of value where the member seem to be heading for more “pension rip-offs@, I cannot support a solution as crude as a charge cap.

Instead , I suggest that Labour and the Coalition agree between now and April to investigate the state of the drawdown market with a view to naming and shaming those drawdown providers who are seen to be extracting the proverbial.

Meanwhile, those of us determined to build new product that decumulate collectively, can get on with the job of offering some proper competition in what appears to be a very uncompetitive part of the market.

Posted in accountants, advice gap, pension playpen, pensions | Tagged , , , , , , , , , , , , , , , , | 1 Comment

It’s best to co-operate – guest blog from Con Keating


Con Keating has been thinking for the rest of us for over 40 years. His generosity of spirit are matched by his commercial acumen. His way of thinking is not popular with many who manage money but maybe that’s because he thinks more about the long-term outcomes of decisions than the short-term profit they generate.

Con sent me this piece, that recently appeared in Portfolio International, after reading my musings on the damage that could be done the Pension Freedoms by episodes such as the Great Fall of China

Co-operation lies at the heart of most economic organisation. We ‘know’ that it can be beneficial. Its promotion has even found institutional form in international bodies such as the Organisation for Economic Co-operation and Development and the European Union. It permeates our everyday lives at all levels from the trivial to profound. One key institution, the company, is entirely dependent upon co-operation among and with its stakeholders. Yet when we come to its analysis, the academic work is deeply unsatisfying. We are faced with specific cases, or the abstractions of theoretical games, where strategies such as tit-for-tat dominate in repeated rounds.

Against this background, a recent short paper from Alex Adamou and Ole Peters “The evolutionary advantage of co-operation” offers a new approach that holds the prospect of fresh insight into a wide range of fields, not merely economics. With co-operation constructed as risk-pooling and risk-sharing, and the insight that what matters is the time average return, not the expectation, they demonstrate that co-operation may result in all parties gaining. As Adamou and Peters put it “Pooling and sharing resources reduces fluctuations, which leaves ensemble averages (expected values) unchanged but, contrary to common perception, increases the time-average growth rate for each co-operator.” It is pleasing that co-operation arises naturally from economic self-interest and that its limits are well defined.

It also throws light on the caution exhibited by long-term investors. The penalty imposed under the time average approach, the wedge driven between the expected return and the time average, is quadratic; a portfolio with an expected return of 5% and volatility of 10% will experience a time average (or geometric) return of 4.5%; that same portfolio with volatility of 30% will deliver a time average of just 0.5%.  Although long-term investors may not be subject to intermediate liquidation on disadvantageous terms, they have a tangible interest in ensuring that their portfolios are conservative and not highly volatile given the pronounced effect this has on their long-term performance.

In a first application of their insight, with the academic and turgid title “Rational insurance with linear utility and perfect information”, Peters and Adamou consider the well-known puzzle of why insurance exists. They describe the puzzle in this way: “according to the expectation value of wealth, buying insurance is only rational at a price that makes it irrational to sell insurance. There is no price that is beneficial to both the buyer and the seller of an insurance contract. The puzzle why insurance contracts exist is traditionally resolved by appealing to utility theory, asymmetric information, or a mix of both”, and conclude: “In this new paradigm insurance contracts exist that are beneficial for both parties.

The analysis throws up some other very pleasing results. A range of prices exists, where both parties will gain, which opens the prospect of negotiation of premiums for a particular risk.  This admits the possibility that concerns over adverse selection and moral hazard may be accommodated and business still successfully written. A further result is that in the limit where policy loss exposures become negligible relative to the insurer’s wealth the time average converges to the expected value paradigm that is so comprehensively used in insurance pricing today.

This also throws considerable light into the design of some other financial contracts – notably pensions. The traditional defined benefit occupational pension was both risk pooling and risk sharing; it is part co-operative saving scheme and part insurance policy (against excess longevity). Intriguingly this work suggests that the insurance provided by the sponsor employer in supporting the scheme can be structured to be beneficial to it, whereas all analysis to date has considered this a pure deadweight risk for the employer. In addition, the fact that both savings and insurance elements are beneficial to scheme members should leave us in no doubt as to the inferiority of the individual defined contribution arrangements that are now so much in vogue. The collectivism of unitised DC savings really is no substitute for the risk-pooling and risk sharing of traditional DB.

con keating

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Michael Johnson and the Super ISA


This is the latest from tax and pensions supremo – Michael Johnson. Love it or hate it – the pensions ISA or Super ISA as Michael calls it- looks set to dominate our thinking over the next few months


“Last year’s pensions liberating Budget (ending the requirement to annuitise) had profound consequences for private pensions. It reminded me of Michael Caine’s comment in The Italian Job: “You were only supposed to blow the bloody doors off!”

In July’s Budget, the chancellor launched a consultation into the whole future of the pensions tax regime. From the pension industry’s perspective, perhaps now “I am become Death, the destroyer of worlds” is a more appropriate quotation (a line from Hindu scripture, quoted by Robert Oppenheimer following the first test nuclear explosion).

Today, the savings landscape is characterised by two disparate regimes: pensions and Isas. Pension savings attract tax relief on contributions, withdrawals being taxed, whereas subscriptions to Isas are made with post-tax income, but withdrawals are tax-free. The chancellor is hinting at a dramatic simplification: the end of the pensions framework, to leave us with an Isa-centric world.

This would be widely welcomed, particularly by Generation Y (the under-35s). Pension saving is from a bygone age, increasingly at odds with how people are living their lives. Indeed, a pure Isa arena feels inevitable, not least because pensions tax relief (including national insurance contribution relief on employer contributions) is wholly incompatible with pensions liberalisation, which shatters the historic unwritten contract between the Treasury and savers.

The latter, having received tax relief on their contributions, were expected subsequently to secure a retirement income through annuitisation. But no more. This leads me to argue that all tax reliefs on pensions contributions should be scrapped, along with the Lifetime Allowance, as a simplification measure.

So, what should replace private and occupational pensions? We now have an opportunity to replace a ludicrously complex retirement savings vehicle with a fairer, more cost effective, simpler and transparent arrangement. Last year, I proposed a single Lifetime Isa for everyone, to be included in the auto-enrolment legislation.

Allocated at birth, it would serve from cradle to grave, signalling the emergence of a lifetime savings agenda. Each post-tax £1 saved (irrespective of source, that is, including employers’ contributions) would attract 50p from the Treasury, up to an annual limit of, say, £4,000. This is double the rate of incentive that basic rate taxpayers currently receive via tax relief, and a total of £12,000 is more than adequate savings capacity for almost everyone.

Savers would have ready access to their own contributions, crucial to retaining Generation Y’s engagement with saving anything at all. Already faced with unaffordable housing, college debts, fragmented careers, earnings stagnation, zero hours contracts, relatively thin occupational pension provision, a rapidly-retreating state pension age and, perhaps most challenging of all, faced with having to support an ageing population, this could be the first generation to experience a quality of life below that of their baby boomer parents.

Treasury and post-tax employer contributions should be locked in until retirement (perhaps with income and capital growth); thereafter they could be accessed in the form of a tax-exempt Isa Pension. Yes, an annuity, perhaps for a minimum of ten years, fuelled by the 50p incentive which, being flat rate, would address today’s fundamental conundrum that because Income Tax is progressive, tax relief is regressive, which is grossly unfair. And it is patently failing the next generation.”

this article was written for the Financial Times published Saturday 22 August 2015, Centre for Policy Studies Research Fellow Michael Johnson writes on the future direction for pension policy: 


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